It is not possible to run two different versions of ASP.NET in the same IIS process. Please use the IIS Administration Tool to reconfigure your server

If you are working with IIS 6 then you will face this issue. This issue though will not rise in IIS5.
Simply,
create a new application pool and move the site that you will be upgrading to that pool.

Here is a nice article on this
http://weblogs.asp.net/owscott/archive/2006/01/26/436607.aspx