Check out the book "The Smarter Science of Slim", it's author Jonathan Bailor has done several guest posts here for Mark.
In it JB lays out a theory (backed by a lot of independent scientific research) that everyone has an inherited physical genetic potential with an appropriate % of fat and muscle, he calls it a Set Point. As we stray further from the lifestyle our genetics have developed for that Set Point becomes skewed I.e. as in most stressful situations we drop muscle and store fat.
He focuses on diet being the primary stressor (with exercise secondary), so if you improve your food quality (irrespective of quantity) you body will re- calibrate its set point closer to that original level defined by your genes. In this case it is possible to drop fat while gaining muscle.
If that is your goal then I think it certainly is possible to do both at once. However if what you want to do increase muscle over you genetic Set Point then it will be harder.