Yes, the theme is compatible with WordPress 3.5, which is what’s being used on the live demo: http://themeblvd.com/demo/swagger
There was never any update that was needed for this. Ironically, the only update made on ThemeForest was updating to say it’s compatible. I guess with Envato’s system, when you update anything on the product, it marks this down as the theme being edited, which is a little misleading in my opinion.
With that said, you are using an old version of Swagger. You can always get the latest version from ThemeForest.net > My Account > Downloads. However, I don’t think that’s your problem.