Conditionally switch jquery version
I had to do this recently also. Revert your jquery_update to 1.3.2 (or whatever it provides by default) and follow the instructions at http://drupal.org/node/1058168.

They key is to notice that you load the newer version of jQuery before the &lt;?php print $scripts; ?&gt; in your page.tpl.php.

The final thing you need to do, which is not mentioned there, is to load your jquery plugin in between the new jQuery and the jQuery.noConflict(). This will make it so you don't have to modify the plugin (That pages tells you how to modify the plugin if you can't do this final step).