Unless you work in an enlightened shop or happen to be one of the fortunate few who are allowed liberties, you're better off leaving Java 6 on your home computer. And if your shop isn't at least
looking at Java 6 at this point, it's a good idea the keep the old CV polished up.
When you pick source and object compatibility levels in Eclipse, they apply to the entire project. You can include components compiled under Java 5, 1.4, or whatever in a Java 6 project, of course, but anything you compile yourself will be done according to the rules of that project. In order to do otherwise, you'd have to create the exceptional components in some other project that had a different Java version setting and import them.
To tell you the truth, I don't really notice much difference between Java 5 and Java 6, and I do a lot of bouncing back and forth. The only thing I can recall without RTFM'ing is that Java6 handles annotation processing better, but I only do annotation stuff about once a year. Then again, I'm not using Java 6 features just because I can - only because I need to.
Java 1.4, on the other hand...