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Usually we are defining the module version in app/code/local/Mymodule/Mynamespace/etc/config.xml file. But if we put the version in app/etc/modules/Mymodule_Mynamespace.xml it also works fine. I know this is because when rendering the Magento system it loads and merge all the *.xml files to one huge xml file. But the thing I want to know is it ok to use the version definition in activation config rather than etc/config.xml ? Any suggestions will be appreciated.

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I suggest to leave it in config.xml to keep a consistency in your code. but if, for some reason, you need it in the declaration file (in etc/modules) I don't see any harm in putting it there.
Just be careful. If you add the version in both files the value in config.xml will override the one in etc/modules.

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