Here's the dilemma....
are you building an applet? -- The HTML 4.0 spec defines Java 1.1 as the standard. If so, you will get the most bang for your buck (or put another way, applets that work) if you develop this app using the JDK 1.1.7 or better.
Are you developing a web application? If so, you will likely want to go with JDK 1.4 because many application servers (i.e. BEA Weblogic) have not made the transition to JDK 1.5.
Are you building a desktop application? You will most likely want to use JDK 1.5 -- the new features will lower development costs as well as give you a larger library (compared to earlier versions of the JDK) to develop with. But BEWARE!!! If you use many 3rd party libraries in your application, there may be proplems because JDK 1.5 has added new keywords to the language that many older applications may use inappropriately. You must be sure that your 3rd party library base is up-to-date with the JDK 1.5.
I hope this was helpful.