I\'m developing an application that is targeting the .NET 3.5 Framework. The application\'s setup installs the .NET 2.0 runtime on the target machine. So fa
.NET 3.5 is not literary 100% compatible with .NET 2.0, but with .NET 2.0 SP1.
But I don't know if that will give you any problems. The .NET 2.0 SP1 update is said to be made to make Extension Methods and maybe Automatic Properties available (don't remember specifics).
Scott Hanselman has a good blog post on this.
As for the size of the .NET 3.5 deployable file is that it's .NET 2.0, 3.0 and 3.5 for x86, x64 and the other 64-bit architecture in one big file.