Firefox 1.0 - 1.0.6 were largely the same. There weren't that many version incompatibilities. However, the system is flawed. Extensions almost always leave behind parts of themselves even after you've uninstalled them. Try it. Uninstall PasswordMaker and the following files (at least) get left behind:
passwordmaker.rdf
passwordmaker.xml
/extensions/{5872365e-67d1-4afd-9480-fd293bebd20d}
And this is for PasswordMaker. Its not that bad actually.
Others are much worse.
That is why the developers over at Mozilla have completely revamped the extension system for Firefox 1.5 However, they've let developers know the differences far in advance, so by the time the official version of 1.5 comes out, pretty much all of the extensions will work.
At least, that's the gist I've gotten. I'm not a developer, so I don't know for certain. I hope that wasn't long-winded. I do that sometimes. I'm sure Eric will give a much better explanation.