Yes, with caveats depending on what you are trying to accomplish. If it's a graphics oriented app you do have to worry about the automatic scaling and compatibility modes and screen sizes.
The 1.5 resource tags that I use are
this corresponds to ldpi, hdpi on 1.6+ and unless you search 20 messages deep on a particular thread on Android developers email list you won't see the 120dpi /240dpi tags discussed despite that they work for 1.6+ environments.
I'm releasing a significant framework for 2D/3D real time app & game dev (IE star demo is a game engine that can load Quake 3 assets) and everything compiles to 1.5 and also runs across the ecosystem of devices.
Check out this tag in AndroidManifest.xml as it's useful when compiling with a later SDK, but making sure it runs with 1.5 (you just can't call 1.5+ API):
<uses-sdk android:minSdkVersion="3" android:targetSdkVersion="4" />
Another trick I prefer is building with Ant files and not using the Eclipse suite (I'm Idea based anyway for last decade practically!). I understand the Eclipse environment when you select a later target SDK automatically associates the SDK jar file. One thing I do with a more manual build is attach just the 1.5 android.jar though build with the latest SDK that way it's impossible to call newer APIs in the IDE I use.
So long story short yes 1.5 apps are fine, but their are workarounds required for some later SDK behavior; especially with OpenGL ES dev.
Founder & Principal Architect; EGR Software LLC