Hi,
See the article Understanding the Difference Between Deployment Files and Source Code.
Note that you are using deployment files that are already compiled for .NET 4. You should choose "no" to any upgrade prompt in VS since upgrading is not really doing anything other than changing config settings for a different version of the framework than the one we packaged it for and apparently breaking it (though I don't know why since I run it under .NET 4.5 all the time with no errors). ie you can re-compile the deployment files all day under .NET 4.5 in VS but since they are already compiled and the package does not contain the source code the existing dlls in the /bin folder are not really being compiled at all and will remain compiled as .NET 4.
If you were running the .NET 3.5 package under .NET 4 then I would expect the errors because there are compatibility problems between .NET 3.5 and .NET 4 web config settings as discussed in the 9th and 10th items in our FAQ.
You should be able to run our .NET 4 deployment files under .NET 4.5 but I would not let VS do any "upgrading", I would just change to a .NET 4.5 app pool in IIS if your machine has application pools designated at .NET 4.5.
Generally I would not work with the deployment files in VS nor do any real mojoPortal custom feature development in WebMatrix since it is optimized for web pages and razor which is not compatible with WebForms used by mojoPortal.
Hope that helps,
Joe