You can. After you install .NET 2.0 a new tab will appear in IIS for ASP.NET and allow you to pick the version. Also, you'll need to keep your application pools separate for .NET 1.1 web apps and .NET 2.0 web apps or you'll have problems.
No, its not hard. In IIS you just need to create a new application pool. Then on your web app, set it to use the new app pool you created, then set its .NET version to 2.0.
You can try running them in the same app pool, but I've had problems doing that.
Does anyone know if I can install .net 1.1 and .net 2.0 on the same machine and use 1.1 on one web site and 2.0 on another without problems?