Everything there is to know about maintaining WP7.0 and WP7.1 versions of your app in parallel on the Windows Phone Marketplace
How do I maintain Windows Phone OS 7.0 and Windows Phone OS 7.1 instances of my application?
When you have published a Windows Phone OS 7.1 update for your Windows Phone OS 7.0 application, you now have two instances of your application. These instances can be updated independently. You can update these instances in order to continue to service customers who still have devices running Windows Phone OS 7.0, while also servicing customers running Windows Phone OS 7.1, with your application enhanced to take advantage of Windows Phone OS 7.1 features.
You can manage both application instances through the lifecycle page for your application on App hub. When you have a Windows Phone OS 7.0 instance of your application and a Windows Phone OS 7.1 instance of your application you will see a dropdown at the top of the lifecycle page, which allows you to choose an application instance of the application and apply an action to that instance. This is shown in the following diagram.
When you have both Windows Phone OS 7.1 and Windows Phone OS 7.0 instances of your application in the Windows Phone Marketplace, you need to be aware that catalog details, pricing and some actions that you can perform from the lifecycle page in App Hub are shared across both instances of your application. The properties that are independent for each application instance, as well as those that are shared across Windows Phone OS 7.0 and Windows Phone OS 7.1 instances, are illustrated in the following diagram.