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The PDF version and many other options are controlled by .joboptions files. By default, the Print.joboptions file is used at:
{your install location}\required\settings\

Make a copy of one of the existing .joboptions files and name it something like: "Print.1.3.joboptions"

1. Edit the new job options file using either Distiller or a text editor so it specifies 1.3 compatible PDFs

2. Modify your XML to use the new job options file:
  convertRasterToPDF options="Print.1.3.joboptions"

To modify a joboptions file with a text editor.
- Open the one you want to modify in a text editor
- Look for the line: CompatibilityLevel 1.4 (or whatever value is there now)
- Change it to: CompatibilityLevel 1.3

Modifying the AGS joboptions file with Distiller has one confusing aspect. See the Knowledgebase article at:
- <http://support.adobe.com/devsup/devsup.nsf/docs/53346.htm>