In some of the .Net releases, MS has introduced tiny changes in behavior. It's possible that these changes could break an application, although I've never run into such a situation -- and I work with .Net all day, every day.
Given several versions of .Net on your machine, the .Net loader will prefer to run an application on the version that it was actually built for, so any of these incompatibilities will not be encountered anyway. Of course, if you've only got 3.5, then that's what the loader will use, and you'll almost certainly be OK.