How can I discuss an apparent demotion with my executive director?

I have considered resigning

Do not resign until you get a job offer from another company.

Need suggestions on how to approach issue with Director

You can ask the director any questions you want to in a professional manner:

1. Is it just a temporary assignment for you?
2. What are the long term assignments that the director plans for you?
3. Your long term career goal is to work in project management. This new position does not fit your goal. Can he find a better assignment for you?

Note: Some people may be surprised to see that some times, new positions may fit them better than they thought. For example, at one of my former companies, I knew an excellent software developer who eventually became the director of the customer service department, and he loves this job.

One last note: it is possible that the director knows this new position does not fit your career goal, but he forces you to take on this position anyway.

In that case, you should look for new jobs at other companies that fit your long term career goal better (while keeping this current job to avoid a gap on your resume).

Do not resign simply because you dislike the new position and want to show the manager or director that you are not happy about this new position.

Resign only after you get an official job offer from another company.

I need suggestions on how to approach this issue with the Director.

I would see a couple of possibilities, which include:

1. Not approaching that Executive Director and taking things in your own hands. Which is finding a new employer where you can execute your profession with the experience you have. Chances are high that this manager is well aware of his or her action and will not have the time or energy to explain him- or herself to you. Whatever the reason.
2. Trying better to understand what is the legal situation and if you have any power in the situation. Such as: was your work contract/agreement unilateraly changed without your will and compensation for losses (eg. loss of career opportunity)? What is the employers point of view of your future in this company for the next five years? What is the employers feedback on your performance and behaviour? (Some countries' practice is a work contract termination plus a new offer with a significant change in work duties and compensation. For better or worse.)
3. Reflecting on your path, progress and behaviour and why it let to the situation as it is today. Trying to learn from it. Speaking with a trusted coach and adding the experience to your backpack of career lessons. Which we all carry.

These are my opinionated thoughts as an experienced manager and leader. Mix those thoughts with other peoples opinions and you will find a good way to approach this.