I've just installed 1.2RC1 this way and it installed fine in parallel with 1.0.14.
There is a bug, sort of, when selecting components to install. It offers file associations with all Lazarus file types, which I DON'T want it to do because I want the associations to remain with the first install. When turning them off, the installer obviously detects the previous install and warns that "these components are already installed, and this won't uninstall them" which clearly doesn't apply in this case and can potentially confuse the user.
So, this warning should be disabled in some way for secondary installs. I guess it would also be a reasonable default for file associations fo be off for secondary install.
Concerning directory names for the secondary install, perhaps some defaults could be offered for the clueless. Maybe it could all be set to "Lazarus2", just as the program group is set (e.g. c:\lazarus2 for program, AppData/Lazarus2 for config and Lazarus2 for desktop icon).
I guess the current choice of "Lazarus2" for the program group could be unfortunate though. perhaps when Lazarus 2.0 gets released, it might be installed so everything is named "Lazarus 2" or "lazarus2", something quite common for some other software. That is often used to differentiate between major versions which may coexist in parallel...
Another suggestion, it would be useful for the installer offering to copy the config from the primary install. So if the user has many customizations which he/she wishes to keep, this way it could be easily done.