I get the same error when trying to upgrade to the latest beta -- but I have had the SDK in my home directory, written as an absolute (not relative) path since long before I ever even installed Android Studio.
So the error message has got to be wrong, but I know of no way to get Android Studio to recognize where it is, even though both Eclipse and the SDK manager have no trouble finding it.
Could it have something to do with having to run Android Studio as super user to do the upgrade? My regular login (this is a Linux installation) does not have write permissions for the /opt directory, so I have to run as super user to get it past the error message of not having permissions to write to /opt.