Thanks for that info. I was always unclear on whether there was such a thing as an environment that has .NET 2.0+ but did not support .NET 1.1 applications. I guess I have my answer. I'll have to upgrade SGDK2 as soon as possible after the initial release (I don't want to overhaul SGDK2 right now when it's just beginning to settle down). I've been wanting to take advantage of 2.0 for a while, and convert SGDK2 to Visual Studio Express, which is free for everyone (instead of the version of Visual Studio I'm using now which one would have to buy, and why would you buy something older and worse than the free one?). So I'll release 2.0 with .NET 1.1, then start work on 2.1 for .NET 2.0 (and maybe try to support OpenGL too or something).
To answer your question, yes, it's safe to have multiple versions of .NET installed. .NET is very tightly versioned so applications and framework related to .NET 1.1 remain quite separate from those related to .NET 2.0.