Peter:
You can use either timer while in the ISR for timer 0. However The interrupt flag for the interrupt service level you are curently servicing will not re-queue until after an RETI.

Note that is you need to generate PWMs at 0% (or near 0%) or at 100% (or near 100%) duty cycles you would be far better off learning about the PCA that is available on most 8052 derivatives. The PCA is made to order for PWMs. Check out the LINKS button to the left and go to the INTERESTING SITES section and click on the 1) Intel PCA Cookbook and 2) PCA Basics. These documents will get you to implementing good PWMs.

Michael Karas