I get this question all the time with developers asking if installing .NET 4.0 will replace the existing .NET 3.5 framework on their machine. The answer is NO.
.NET 4.0 framework does not replace or remove the previous .NET frameworks. .NET 4.0 successfully installs side-by-side with previous versions of .NET framework including .NET 3.5, 3.0 or even 2.0.
Also note that using Visual Studio 2010 IDE, you can target your applications to use the framework of your choice, i.e. you can use the same IDE to build .NET 2.0, 3.5 and 4.0 apps on the same machine. You just have to choose your desired framework when creating a new project, as shown below