The 2.0 runtime will load the 1.1 DLL and handle it exactly like if it was a 2.0 DLL (2.0 and 3.5 are the same, as you may know). That means if a method isn't found, it will indeed toss an exception, in the same way if you manually edited a class in bytecode (using an hex editor or something) to add an invocation to a method that doesn't exist. The object will act in every ways like if it was a 2.0 DLL, which can mess up in certain rare scenarios (for example, when handling some more obscure culture codes, as they were changed between .NET 2.0 and 1.1)
Aside that, it will work just fine, though do run the code of the DLL through the wizard if you can instead of running it as is...may catch some stuff :)