When a client connects to an 802.11b/g wireless network at 1 Mbps, are all other users who are closer and have better SNR limited to 1 Mbps or can they get better throughput, such as 5.5 or 11 Mbps?
Each client that associates to an AP can negotiate any mutually-supported data rates, without being directly affected by rates in use by other clients. Clients do compete for bandwidth on the AP's channel, but that affects application throughput, not data rate. For example, a dozen clients can be associated to the same AP at 54 Mbps, but all together they will achieve an aggregate throughput closer to 27 Mbps (the actual capacity of the channel.)
You may be thinking about the impact that 802.11b clients have on 802.11g clients, due to the protection mechanism required for backwards compatibility. An 802.11g WLAN with no 802.11b clients can operate without protection, reducing control frame overhead. If an 802.11g WLAN has even a single 802.11b client, it must use protection, and that extra overhead reduces throughput for all clients. To learn more about the b/g protection mechanism and its performance impact, read this tip.
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