We never made 1.6 - I assume you mean 1.2.6 given the comment about project incompatibility.
Yes you can install 2.1.1 over the top of 2.1.0 into the same folder. Projects created in 2.1.0 can be opened and third-party plug-ins you have will not be removed by the Audacity installer. See Audacity Manual.
If you are adding new third-party plugins, you add them in 2.1.1 by installing them then opening Effect > Manage… to enable them, not by restarting Audacity after installing them. See Audacity Manual.