Quote from SIMJEDI
You have to keep the default minecraft folder name unchanged. In the bin directory make a folder called "Jars" open that up then make 2 different folders, one named 1.2.5 and one named 1.3.1, then COPY AND PASTE the .jar file for the version in to them. Setup 2 configurations for each version and point it to the jar file located in the versions folder. Also make 2 different mods_other folders per version.
ETA2: Or you could make two different .minecraft folders and put everything from each one in there then point with a configuration.
That's what I did actually - created a new .minecraft folder in a completely different part of my computer, tucked (what I hope is!) a clean .jar in there, and redirected MagicLauncher in the advanced options to point to that .jar. I think I'm doing something pretty obvious wrong, but it's not coming to me...