It still uses DirectX 9, but they enforce the need to have a DX10 GPU on the PC or basically XBox 360 GPU capabilities. You can change it to use the "Reach" profile instead of "HiDef" though (Somewhere in the project properties?), which will allow you to use XNA 4.0 on XP, but you will meet some limitations. See:
http://blogs.msdn.com/b/shawnhar/archive/2010/03/12/reach-vs-hidef.aspx
And I would go with the latest XNA tbh, they have changed quite a few things here and there and all resources online will use 4.0. Also if you do 2D stuff, 3.0+ introduced a bug when you supplied rotation to the drawing methods, which basically resulted in something you don't want and cannot fix, 4.0+ fixed this.