I have a setup like this:
----ActionBarSherlock/ # Third party library and some demo apps
----MyProject/ # Main project
--------tests/ # Test project for main project
----TouchDB/ # Third party library
When the Create Android build files step runs it appears to be updating MyProject/tests such that the main test project is one of the demo apps from ActionBarSherlock:
[android] Creating build files for test project at 'MyProject/tests'...
[tests] $ /var/lib/jenkins/android-sdk-linux/tools/android update test-project -p . -m ../../ActionBarSherlock/samples/demos/
Resolved location of main project to: /var/lib/jenkins/jobs/MyProject/workspace/ActionBarSherlock/samples/demos
If I can provide any more information please let me know, and thanks for an awesome product!