I'm not sure how this one got started. I've even seen some document out there on a major site (can't remember off the top of my head) that was giving advice on how to get your .NET 1.1 and 2.0 applications working on Windows Vista where they suggest you run them in a virtual PC environment.
I'm going to use the same basic reference as Myth #1 to draw from and then add some of my own experience to the mix. The reason for using the same reference is because I'm guessing that it is where the myth originated and got mis-interpreted (or downright ignored). Here is what Somasager stated:
As I’ve mentioned previously, Windows Vista will ship with the .NET Framework 3.0 pre-installed. We’re also testing to ensure that your .NET Framework 1.1 and 2.0 applications will work on Windows Vista so that your existing applications will continue to run as expected. However, we will not support Visual Studio .NET 2002 or Visual Studio .NET 2003 as development environments on Windows Vista. You can continue to use Visual Studio .NET 2002 or 2003 on Windows XP to develop applications that can run on Windows Vista. Given the customer feedback that we’ve received since the launch of Visual Studio 2005 indicating the manageability of upgrading from Visual Studio .NET 2003 to Visual Studio 2005, we are focusing our efforts on ensuring VS 2005 is a great development platform for Vista.
.NET 1.1 and .NET 2.0 is not the same thing as Visual Studio .NET 2003 and Visual Studio 2005. Also, if Visual Studio 2005 does work on Vista, how is it that people seemed to think that .NET 2.0 would not work? Also, .NET 3.0 is essentially .NET 2.0 with additional assemblies attached. To restate that, the core of .NET 3.0 is .NET 2.0; when you install the .NET 3.0 redist, it actually checks to see if you already have .NET 2.0. If you do, it will skip that portion of the install and add the new assemblies (that make up .NET 3.0). After this, a few configuration changes are made and you now have .NET 3.0 (and .NET 2.0). .NET 3.0 is included as part of the OS in Windows Vista.
As for .NET 1.1, one of the MMORPG's that I play, Dungeons and Dragons Online: Stormreach, utilizes .NET 1.1 within their application. I've been playing that game on Windows Vista since Beta 2... so there, .NET 1.1 does work on Vista. You do not need to run the application in a virtual PC environment.