If I reference a .net 1.1 component from my .net 2.0 project would the 1.1 component run on the .net 2.0 CLR would this cause any compatibility problems
Yes, the 1.1 component would run with the 2.0 CLR. There's certainly a possible compatibility problem although pretty unlikely. Check out the full list of breaking changes between 2.0 and 1.1