Yes with LMS v2.x and 3 I can confirm the .net3 issues with own experiences. For v4 I dont know the compatibleness with >=.net3 as well, but to be save I still leave .net3, 3.5, 4 away - just leave .net2 as it come as the installation default for Windows installations. But Im looking also forward for the answer of Joe to this question
Another thing to consider is that UTU2 is dependend from .net3.5. But UTU doesnt belongs at the LMS server installed honestly. Its intended to use at th administrator's PC's.
Steffen