1.2.0 is a free upgrade, you don't need to purchase again. Although originally written for PHP4, it is fully compatible with PHP5 - the last few PHP notices that used to be generated when running under PHP5 should now be resolved in this version (I have yet to update th FAQs). The version of PHP you are running does not directly affect how the ionCube installation works.
In most cases it is not necessary to install ionCube in multiple locations - usually you just need it at or above your root folder for runtime loading. If that does not work, you can use the helper file that comes with the loader to diagnose the problem. Then again, if it works by having ionCube in 2 places, you might choose to just leave it like that.