Application Error : This version of the application is not configured for Market Billing

I just encountered this issue and realized it was because I was running a debug, unsigned version of my app. In Eclipse, when I exported and signed my application and installed it on the phone, then I was able to use my in-app products without seeing this error message.

I have found that once I upload a new copy of my APK to the market, then I experience that "application error" during course of the next hour or so. After at least one hour has gone by (sometimes up to two hours need to have gone by), then I no longer get that error anymore and I can then purchase my items without any problems. It seems that the Google servers need at least an hour to process the fact that you have uploaded a new APK (with regards to the InApp Billing aspect of the APK).

So my advice is for you to wait 1 to 2 hours after uploading your APK, and then see if you still get the "application error".

I also ran into this problem. I finally realized that my published app had a versionCode of 3, my draft (unpublished apk with the Billing permission) had a versionCode of 4, and the signed apk I was using to test in-app billing was still at versionCode 3. Once I changed the versionCode to 4, I was able to get through to the actual in-app product page for the purchase I was requesting.