Thats right, all you would need to change is “bootfile pxelinux.0” to “bootfile undionly.kpxe”.
As for which version I would recommend 1.2 personally, I switched our systems about a month ago and the changes have all been positive for me: I found the linux handling is vastly improved and iPXE seems much more flexible. The front page of the wiki ([url]http://fogproject.org/wiki/index.php/Main_Page[/url]) has a summary of some of the more important changes.
Incidentally when I put up my fog server I also thought I wouldn’t be using it a lot, but I ended up using it ways I wasn’t expecting (system rescue, “backing up” or migrating hardware), I leave it up all the time now 🙂