>Yes, you can install both of them. If you open a VS05 solution in VS08, it will convert the solution file and you can no longer open it in VS05. However, VS08, you can choose which .Net runtime to target, 2.0, 3.0, or 3.5.
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>>I have VS2005 installed and I also have VS2008. Can I install it on the same PC? Can I easily move projects into VS2008 but have them backward compatible?

As Craig said. However, if you want to keep some way to go back to VS 2005 (not needed, really), you can make a copy of the .sln file with another name (adding 05 at the end, for example) and this way you can still opening this solution in VS 2005. Or you can use just one solution, and if you need to go back to VS 2005, you can open the .sln file in notepad and just change the first line from:

Microsoft Visual Studio Solution File, Format Version 10.00

to

Microsoft Visual Studio Solution File, Format Version 9.00

As far as you didn't started using .NET 3.5 projects, theres shouldn't be any other change.

Regards,