To put it briefly, use 1.2 if you have the chance.

1.2 branch is very, very stable even though it's beta. I'm using the latest nightly myself and I've never run into problems. It is also important to note that switching from 1.1 to 1.2 will be a PITA one day, so if you have the luxury of choosing - choose 1.2.

1.2 branch is so much better in many aspects that you will be missing a lot if you choose 1.1, things like improved validation and query performance, pagination, AuthComponent, better plugins et cetera...

Update (18/04/2008): Here is a brief list of new stuff in 1.2, copied from this thread, listed by Dardo Sordi Bogado:

• Pagination
• Integrated Auth (Auth component)
• Email Component
• Model Behaviors (Models)
• Improved plugins
• Better SQL generated in models (Models)
• "With" Associations (models)
• Web services (Router)
• Extensions (Router)
• Sweet FormHelper
• Improved performance
• New cache engines
• Improved models validation
• Localization and Internationalization
• New Shells

Maybe the deadline thing is the only reason to use 1.1, but be advised: if you have a deadline approaching it would be the best not to use Cake at all as it is really difficult to grasp at first.

Happy baking!

Edit: share your opinions here or here.