Throughout this exercise, you must use exclusively the Java 2 platform. You may develop your code using any implementation of the Java 2 platform, but the submission that you return must have been tested and shown to work under a production (not development) version of the Sun Microsystems' Java 2 platform and that platform must not have been superseded by a new production version for more than 18 months by the time you make your submission.
So according to that we can use 1.4.2 because 1.5.0 in not 18 months old...
Correct. The SCJD (unlike the SCJP) is not specific to any JDK version. The only requirement is that the version you use was released less than 18 months previously (or the most current if none were to have been released over the past 18 months) and that it is an official Sun release version (so no beta).
My Assignment URLyBird is registered in last year and the version is 1.2.3, could I also use JDK1.4.2 to test my program and submit it?
That's the version of the assignment, not the version of the JDK you are supposed to use. In fact, there is no 1.2.3 JDK and if there was you'd have an automatic fail if you used it because it'd be more than 18 months old.