The 1.0 and 1.1 directories are there for compatability reasons. If you compile an application for 1.1 and you have 3.0 installed, it will run on the CLR used by the .NET Framework 3.0.
If you install the .NET Framework 1.1 on that machine, that same application will run on the .NET Framework 1.1.
The folder structure (and the config files in them) are part of the mechanism that provides that CLR affinity. This was and is a feature set important to our user community and partner ecosystem.
I do think we are commited to optimizing the .NET Framework install process, and I don't think one can measure that by a single metric like footprint. We have other products (Silverlight 1.0 and 1.1) that have a much smaller footprint.