[eluser]Pascal Kriete[/eluser]
Yep, the loader checks both directories.
It's perfectly safe to use, the only caveat is upgrading, as louis w mentioned. However, using the system folder can be convenient if you're running multiple related apps on that core install.
Bottom line: Experiment, it's a great way to learn what works best for you. If it doesn't pan out in the long run you can always move it back.