support multiple OS versions incrementally

I'd like to support Android 2.1 devices, but also would like to enable users to move my app to the SD card if they have Android 2.2+

The attribute for that is android:installLocation="auto"

How can I still support 2.1 while enable this attribute for 2.2+?

EDIT: I've set it with build 2.1 and I get a compilation error and I cannot launch my app. The reason I don't want to increase the build target to 2.2 is because if I do that and the app gets installed on 2.1, a bunch of exceptions are thrown and it crashes. I want to make sure that the app works perfectly on 2.1. For an example of what I mean, please see NoSuchMethodError: String.isEmpty

An exact solution for you is in Android Manual.

It can be done, set your minimum API level to 7 and your target API level to 8, more details are in the Dev Guide.