Whenever I try to open up a mod in the Construction Kit, it gives me a warning saying, "MASTERFILE: File Update.esm is a higher version than this EXE can load."

When I click Yes to continue, it gives me an error saying, "Unable to find masterfile: Update.esm" and then just closes.

Anyone have any idea what's going on here?

Yeah, that's because the Update.esm is not the same version as the Creation Kit. We just have to wait for an update.

Did they release 1.8?

As a BETA, yes.

Oh, alright. Any ideas when the update is coming?

Nope, we can hope it will be available before the next DLC, but I won't bet on it though

Whew! Had me worried. Hopefully they will update the CK when they update the game. So opt out of the beta Shasow. You can't use it with the CK.

You can use the 1.8 update with the CK, but not Update.esm and the Creation Kit

Yup the 1.8 version of Update.esm cannot be used with the current CK. Once 1.8 is public, hopefully they'll get a CK update to us quickly adn you can mod with the new version.

Can I opt out of the beta without any problems? And next DLC? Has that been announced yet?

Yes, you can. Except that if you have made saves under 1.8, they may not be playable under 1.7. (But I have not actually tested that.)
And there may be some additional views on the CK issue in http://www.gamesas.com/topic/1417647-patch-18-word-of-warning-for-ck-users/, although it seems to be buried pretty deep already.

No, it hasn't.

Tested already: you won't be able to play an update made with 1.8 under 1.7.

So, I can revert back to 1.7 and not break anything in the game (I don't mind restarting my character)? It will be exactly like it was in 1.7 with the 1.8 stuff gone? And what if I made or saved a mod with 1.8, do I have to remove those?

Yeah saves are never compatible with previous versions. Never ever override your 'legit' saves while using a beta. Otherwise if the beta causes issues, you won't be able to play those saves anymore. (Unless the beta goes public release then you probably can)

Mods saved in the CK during 1.8 should work in 1.7 now, since the CK hasn't been patched yet, and the 1.8 update.esm can't even be used with 1.7 CK. So 1.8 Skyrim saves mods will work fine since they're still 'coded' to 1.7 as far as the engine cares.

Has there been an update to the CK that I missed? My CK version is still v1.6.89. I'm running with the v1.8.151 beta patch for the game so if there was an update I should have got it I would have thought.

Either way, we will have to wait for another CK patch if we want to edit mods that use the latest update.esm file. Going by what has happened in the past, I would expect that it would come soon after the full v1.8 patch goes live.

No patch for the CK, hence why I said "since the CK hasn't been patched yet". Unless you mean when I said, "with 1.7 CK" by which I meant the CK for 1.7, which is 1.6.89.