A person asked me this question recently so I thought I might as well put it in a post.
Yes, you can have multiple versions of InstallShield installed on the same machine. Right now on my development machine, I have InstallShield 12, 2008, 2009, 2010, and 2011 all installed and existing peacefully together.
You can also have multiple versions of InstallShield open at the same time. For example, you can have an instance of InstallShield 2010 open at the same time you have InstallShield 2011 open.
You can also have multiple instances of the same version of InstallShield open at the same time. This is useful for having two different projects open in two instances of the same InstallShield version at the same time. Very useful.