Qt Creator looks in wrong directory for executable when debugging or executing

Qt Creator 1.3 cannot debug or execute the target because it is looking in the wrong directory. It looks in the PROJECT directory, not in the PROJECT/debug or PROJECT/release directory which is where the default .pro file places the target

1.Create an new Qt4 GUI app using Qt Creator and all defaults.
2.Build All
3. Hit F5 to debug
4. You get a Message Box with the title: Inferior start failed, and with the message: Starting executable failed...no such file or directory, where the file it is looking for is in the PROJECT directory, not the PROJECT/debug directory, which is where the build put it.

Workaround: Add DESTDIR = ./ to the end of the .pro file