actually you should be running the .net 3.5sp1 version of .net (which uses the 2.0 version of the CLR). Installing .net 4.0 is fine and will not initially affect anything as .net runs in side-by-side mode - to actully run your site under .net 4.0 you will need to change the version the application pool is running under (the way you describe was how this was done in windows XP i.e. before seperate application pools were introduced).

There are no problems using .net 4.0 (at one point the active directory provider did not work well but the last release resolved those issues). As to reasons to run under .net 4.0, at present I would say the ability to use Razor is the biggest one (and other technologies that target .net 4.0) - there are also a few modules that only run under .net 4.0 and as time goes on I think we will see more and more of these. If youre a developer you will also appreciate some of the additional capabilities added to asp.net 4.0