if you're just starting out then I suggest getting the Express (free) versions of Visual Studio 2005 and SQL Server 2005.

To run DNN 4.x you'll need the .Net Framework 2.x and your OS should probably be Win XP Pro or Win 2000 Server.

To run multiple instances of DNN, I believe you only need to do a couple things.  First, set them up in seperate directories and virtual directories on IIS.  Then, make sure their configuration files point to different databases.  Finally, make sure to read the entire install pdf that comes with DNN.  It will save much headache.

Also, to answer your first question, yes, visual studio and sql server can both run on the Windows I specified simultaneously.

Interesting that in my orginal post I had mentioned using Virtual enviroments for DNN testing development.  This is the setup that I eventually settled on and have been using.
WinXP Pro with multiple versions of Visual Studio.  VM Ware Server and 2 instances of Windows 2003 server.  One for hosting DNN 3.x and SQL 2000 and one for DNN 4.x and SQL 2005.  Each has their own custom security templates and can be configured to use my LAN or communicate with host only when disconnected from the LAN.   Then I saw this recent blog which confirms my strategy.

http://dotnetnuke.com/Community/Blogs/tabid/825/EntryID/1105/Default.aspx

Thanks.