Yes, you can install multiple desktop enviroments and switch back and forth... Check with your specific distro for exact instructions... If you are using kdm, you can select your desktop at the login prompt...
As to the version of the desktop, that depends on your distro... Usually, unless you do a little tap-dancing with the installer, you won't get a major version upgrade of the desktop enviroment (Or any package for that matter) without upgrading to the next "release" of the distro... Usually, what is done, is a particular package stays at the same major/minor version, with only the minor revision level changing, although all the security fixes from the next higher version of a given package are usually "back-ported"...
Some distros, like Gentoo, don't really have a "version" of the operating system... there are new CD Image releases a couple times a year for hardware compatability reasons (So the kernel will be able to recognize new hardware and get itself installed in the first place)... but whenever you do a "general" update, it always brings you up to
"current"... You might say, if someone asks you what version of Gentoo are you running, you could say I'm running the May 18th, 2008 version.