yes..it is compatible issue.
So, you must have both .net 1.1 and 2.0 installed on your system.
Applications built on .net 1.1 need .net 1.1 installed on ur system.And applications buile on .net 2.0 will run only when you have .net 2.o installed.
But most of the .net 1.1 application can run on .net 2.o environment.read this:
*msdn2.microsoft.com/en-us/library/ms228009.aspx