I had this error “A reference to a higher version or incompatible assembly cannot be added to the project” during my Windows Phone development. I wanted to add some dll’s because there are no nuget packages for smaato, mobfox etc.
At first I thought that it was because the dll’s were not build as portable class library. But then I found this other source online which gave me the correct and simple answer: Windows blocks the downloaded dll’s by default. You have to unblock it by going to the properties of the dll.
You can also unblock with powershell by using Unblock-File
So perhaps the dialog of visual studio should tell me that it is impossible to add a reference to a blocked dll.