Yes, 1.2 (and before) is fully compatible because HD DVD and Blu-ray have a baseline audio support (much like Dobly was the baseline for DVD). Dolby TrueHD and DTS- Master Audio are optional formats that can be included with a title as and extra sound track - if the disk supports either one of these then it will also support the required tracks as well, meaning that it can still be used. These audio format are likely to remain limited in their use to A/V amps and at present there are few that actually support them.3/ HDMI 1.2 is NOT fully compatible with BR and HD-DVD. As You said, it lacks features so it cannot be 100% compatible. from official HDMI website :
http://www.hdmi.org/about/faq.asp#hdmi_1.3
BR and HD-DVD offer the option to use Dolby TrueHD and DTS-HD Master Audio lossless audio formats, only available if you have HDMI1.3. However, with HDMI 1.2 you can play these 2 lossless audio streams in PCM format if your player and receiver are compatible.
and finally the last revision of HDMI offers the ability to use deeper color space (10, 12 or 16 bit per component instead of only 8bit for HDMI 1.2) and broader color space (IEC 61966-2-4 xvYCC color standard with no color space limitation).
At present deep color has the issue of software support. In terms of the titles, but also, for the PC, in terms of the OS.
All of these HDMI specifications are optional and are not requirements of the spec.