So far, we've stuck with only requiring .Net 2.0 because a) it is a (comparatively) small download and b) it is part of one of the Windows XP service packs. Various other common utilities (including some proprietary graphics drivers and computer games) also require .Net, and so v2.0 seemed like the best choice because people are likely to have it.
I'm slowly questioning whether we need to stick with .Net 2.0. .Net 2.0 was released nearly six years ago now, and they've now got v4. Vista and Windows 7 are also slowly beating WinXP out of the game. From a developer's point of view then 2.0 has the main useful feature (strongly typed collections - also called "generics"), but later versions add other niceties and improvements. HeWhoWatches even asked about newer Mono versions in late 2010.
The choice of .Net runtime shouldn't just be about the developers, though, and we need to think of the end users. Developers may update comparatively quickly and be near the cutting edge, but end users aren't always.
So, what versions of .Net do you have installed? If you don't know then there are some apps around that'll tell you (including http://www.asoft.be/prod_netver.html).