Add a folder 'Django-1.1.4' (or any other you've chosen) distribution. Go to PyDev interpreter settings in Preferences again. Let's add this path to Eclipse 'PYTHONPATH' (connect folder in preferences). We'll need this path to be static, to connect it to Eclipse IDE.
I used '/Users/garmoncheg/Developer/tutori al/Django-1.1.4'.
Unpack 'Django-1.1.4.tar.gz' (in my case) somewhere and copy it to your work folder. (Install another django project, that requires Django-1.1 environment and not the new one.) But you may easily use newest one, if you're planning to write apps from scratch, or so. I'll use old version to meet my purposes. You can download it at their official site here.
First thing you need is a fresh, or not, Django distribution.
It is good to have ability to have multiple Django versions installed. It will be a good practice not to install it into system, like official manual says.