Isolation level in a function

Hello, this is my first post, please don't shoot...

I was just experimenting with transactions (PG 8.1), and there is
something which puzzles me. If i write 'SET TRANSACTION ISOLATION LEVEL
SERIALIZABLE;' in my function, it breaks. Error informs me, that it was
executed after some query, while it is a first command in the function
after declares and begin!

However, it seems to work perfectly well if I change in the same place
the system variable, responsible for the transaction level. I used
set_config, if I remember well. The function is only for a DBA task, so
it seems to be all right to use set_config, isn't it?

And my questions are:
1) Why in the first case it is not possible? Is it an error or am I
just doing something wrong? Should have set something before?
2) Are there any downsides of the mentioned solution (changing
transaction_isolation value), except of the fact that it is an
administration command and should not be used :)?

Thanks,

_-_-_-_
Bart Golda