Im 38, 5'9"and 205lbs.I need to shed about 20,or 30 pounds. My question is, is it realistic to think i can build muscle at my age or should i be content to just lose some flab.

The answer is definately yes! Here is a story for you. When President Reagon was shot at the age of 72 his suit jacket size was 44 long and his waist was 38 inches. 7 months after the shooting, and weight training on a program that Arnold himself built, his measurements were:
suit jacket: 46 long
waist size: 36 inches

And, remember, this was a man in his seventies and it was done in only 7 months after being shot!!!!

Don't worry, you can definately build muscle. You just have to be aware of your nutrition a little bit more and of getting enough rest. If you have not exercised or trained with weight for awhile, try out the 3 Day General Fitness program to start with. This will provide you with all the stimuli needed to start building muscle.