Question : Do I need all version of .NET Framework?

First thing first :
We are a service provider, recently our customer requested us to install Microsoft .NET Framework 2.0  and we did. But after installation his application still won't not work.

Hence, the customer wants us to install Microsoft .NET Framework 1.1 Hotfix (KB928366).

We only providing Operating System support, we don't provide application support ( out of scope) but sometime we have to do it out of good view( best effort basics).

My question is :

1: Do I need all version of .NET Framework?
>> Microsoft .NET Framework 1.1
>> Microsoft .NET Framework 1.1 Hotfix (KB928366)
>> Microsoft .NET Framework 2.0 Service Pack 1
>> Microsoft .NET Framework 3.0 Service Pack 1

2: Can't I just install the latest one?  

3: Can I install 1.1 on top of 2.0 ?? wa wa wee  wa, I'm very scare this will damage the OS.

Answer : Do I need all version of .NET Framework?

you can install every one version of .net framework on the same box as long as it will be standalone .net applications.
but for asp.net applications you need different application pool for each one of .net frameworks.
for example, create pool for asp.net 1.1 and for asp.net 2.0 and assign applications to it's pools according to application needs.
pools are created in iis management console. here is complete info:
http://support.microsoft.com/kb/816782