1. Go to the project folder and right click on it -> properties -> check off the read only box and click ok
  2. Right-click on your project and select "Android Tools -> Fix Project Properties"
  3. Right-click on your project and select "Properties -> Java Compiler", check "Enable project specific settings" and select 1.5 or 1.6 from "Compiler compliance settings" select box. (try all the levels one by one just in case)
  4. Under Window -> Preferences -> Java -> Compiler, set Compiler compliance level to 1.6 or 1.5.
Hopefully it will settle the problem.

Link: http://stackoverflow.com/questions/7637144/android-requires-compiler-compliance-level-5-0-or-6-0-found-1-7-instead-plea