If you use just Quartus, there is no problem having multiple versions installed simultaneously and going back and forth between versions. You simply start Quartus normally whenever you change versions.
If you use SOPC Builder and Nios tools, you have to be more careful and have to remember to change environment variables. When you start Quartus, it sets the QUARTUS_ROOTDIR environment variable automatically to point to the installation currently in use. Before you start SOPC Builder or Nios tools, make sure other environment variables point to the correct location.
When I install a new copy of the tools, I save off my environment variables. (I simply run "set > my_filename.txt" in a Command Prompt window to save everything.) When I am going to change to a different version that is already installed, I manually change the relevant variables other than QUARTUS_ROOTDIR to the values needed for the version I'm switching to. What variables are used has changed between version 5.0 and version 8.1.
This is documented at
http://www.altera.com/support/kdb/solutions/rd03082007_165.html. I don't know whether that's the newest on-line reference. Altera_Tool_Switch.bat is mentioned there. I've never used it. It's easy enough to change one or two variables manually, and I know for sure what I'm doing if I do it manually.