Turns out that quoting the PODS_ROOT definition in the xcconfig file breaks building after all...

examples/AFNetworking iOS Example/AFNetworking iOS Example.xcodeproj/project.pbxproj

@@ -316,7 +316,6 @@
 				GCC_WARN_SIGN_COMPARE = YES;
 				GCC_WARN_UNUSED_PARAMETER = NO;
 				INFOPLIST_FILE = Info.plist;
-				OTHER_LDFLAGS = "";
 				PRODUCT_NAME = "$(TARGET_NAME)";
 				SKIP_INSTALL = YES;
 				WRAPPER_EXTENSION = app;
@@ -337,7 +336,6 @@
 				GCC_WARN_SIGN_COMPARE = YES;
 				GCC_WARN_UNUSED_PARAMETER = NO;
 				INFOPLIST_FILE = Info.plist;
-				OTHER_LDFLAGS = "";
 				PRODUCT_NAME = "$(TARGET_NAME)";
 				SKIP_INSTALL = YES;
 				VALIDATE_PRODUCT = YES;

examples/AFNetworking iOS Example/AFNetworking iOS Example.xcworkspace/contents.xcworkspacedata

-<?xml version="1.0" encoding="UTF-8" standalone="yes"?><Workspace version="1.0"><FileRef location="group:Pods/Pods.xcodeproj"></FileRef><FileRef location="group:AFNetworking iOS Example.xcodeproj"></FileRef></Workspace>
+<?xml version="1.0" encoding="UTF-8"?>
\ No newline at end of file
+<Workspace
+   version = "1.0">
+   <FileRef
+      location = "group:AFNetworking iOS Example.xcodeproj">
+   </FileRef>
+   <FileRef
+      location = "group:Pods/Pods.xcodeproj">
+   </FileRef>
+</Workspace>

lib/cocoapods/installer/target_installer.rb

@@ -13,7 +13,7 @@ module Pod
       def xcconfig
         @xcconfig ||= Xcodeproj::Config.new({
           # In a workspace this is where the static library headers should be found.
-          'PODS_ROOT' => '"$(SRCROOT)/Pods"',
+          'PODS_ROOT' => '$(SRCROOT)/Pods',
           'HEADER_SEARCH_PATHS' => '"$(PODS_ROOT)/Headers"',
           'ALWAYS_SEARCH_USER_PATHS' => 'YES', # needed to make EmbedReader build
           # This makes categories from static libraries work, which many libraries