After running into this problem again, I found that the actual solution is:
1) EDIT the adobe air application descriptor xml file for the project, make sure the following tag is uncommented and includes the extendedDesktop profile:
<supportedProfiles>desktop extendedDesktop</supportedProfiles>
2) Clean your project
3) Then export release build from flexbuilder and select captive runtime option.
The solution listed below was misleading (I had actually included the step described above and not included it in my description below ). Command Line execution was a red herring.
I solved my problem by using a command line request and following the instructions at this website.
Executing the command line request from the bin-release temp folder on my machine I modified the following to my desktop settings:
c:\path\to\air3sdk\bin\adt.bat -package -storetype pkcs12 -keystore c:\path\to\certificate.p12 -target bundle myapp.exe myapp-app.xml -C . myapp.swf