As long as you have ASP.NET 1.1 and ASP.NET 2.0 installed on your
server, both types of web applications will work fine. When you install
ASP.NET 2.0, ASP.NET 1.1 doesn’t get uninstalled so you don’t have to
worry.
However, after you install ASP.NET 2.0 make sure you put your
ASP.NET 2.0 web applications on a different Application Pool.
In IIS 6 you will create a new Application Pool, while in IIS 5 you can
set up your ASP.NET 1.1 applications to run in Medium (Pooled) and
the ASP.NET 2.0 applications to run in High (Isolated).
Unless you put the applications on two different pools you will get the following error:

Server Application Unavailable
The web application you are attempting to access on this web server is currently unavailable. Please hit the “Refresh” button in your web browser to retry your request.
Administrator Note: An error message detailing the cause of this specific request failure can be found in the application event log of the web server. Please review this log entry to discover what caused this error to occur.