I just installed monodevelop on Arch Linux using pacman. I can compile with the mcs command, but I can not build in monodevelop. I am told "MSBuild process could not be started". The same error is given if I try building with mdtool on the command line.
Go to the project options of your project in monodevelop. At Build -> General, there is a new option called Use MSBuild engine (recommended for this project type). Uncheck this option.