Found this solution from Tom’s Random Ranting – worked like a charm.
-Rename STP file as a CAB file.
-Extract the Manifest.XML file.
-Edit the Manifest.XML file – change the “ProductVersion” tag from 3 to 4.
-Rebuild the Cab using the MAKECAB.EXE utility (c:windowssystem32).
-Rename CAB as STP.
-Upload to Sharepoint 2010 Template Gallery and go.
Original Article and details are here: