If you want use both .NET 1.1 & 2.0 applications, you must have both versions installed. You then create a virtual directory under IIS (or with VS2005 you can use it's built-in server) and choose the appropriate .NET version.
FYI you can't use VS2003 and VS2005 on the same project. Once VS2005 converts the project file to the new format, it cannot be used with VS2003.