Would this work?
SELECT
*
FROM
(
SELECT i_version_id,
ROW_NUMBER() OVER (PARTITION BY i_version_id ASC) [counter]
FROM
[PaymentGateway_2006].[dbo].[merchant]
WHERE
dt_updated_datetime > '2013-11-11'
GROUP BY
i_version_id
ORDER BY
i_version_id
) a
WHERE [counter] <= 2
This will give a row counter for each record. Using GROUP BY and DISTINCT in your example above is pointless as your GROUP BY is already restricting your records. Putting in the DISTINCT is just going to effect performance.
As for your error, you can't use TOP and DISTINCT together AFAIK. You could try this if you wanted too:
SELECT
TOP 2 i_version_id
FROM
(
SELECT i_version_id
FROM
[PaymentGateway_2006].[dbo].[merchant]
WHERE
dt_updated_datetime > '2013-11-11'
GROUP BY
i_version_id
ORDER BY
i_version_id
) a
(I haven't tested this as I don't have your Db, but I can't see why this wouldn't do what you need).