Arpan Shah Microsoft Project and SharePoint Blog
SP2 of Windows SharePoint Services (WSS) and SharePoint Portal Server 2003 (SPS) released a few weeks ago. Both Service Packs provide better extranet support and support for SQL Server 2005. As for .NET Framework 2.0 (codename "Whidbey"), only WSS SP2 supports it. I've received several questions on what this exactly means, so let me be super clear here.
WSS SP2 supports the 2.0 runtime and allows you to compile SharePoint Web Parts using the 2.0 compiler. Support for 2.0 does not mean that ASP.NET 2.0 Web Parts will work in a WSS solution. Only SharePoint web parts are supported. But have no fear, the SharePoint Web Parts you develop today will work with the next version of WSS.
SPS SP2 does not support .NET Framework 2.0. This means that you should continue using 1.1. Again, the web parts you develop will work in the next version of SPS. In the next versions of WSS and SPS, SharePoint web parts you develop today will work *and* ASP.NET 2.0 web parts will be supported as well.
In a nutshell, if you're a new customer looking to develop a WSS solution -and- you plan on extending to SPS 2003 in the near future, I would continue developing on 1.1 until the next versions ship - beta Spring of 2006, release second half of 2006. If you start with WSS w/ .NET Framework 2.0 and decide you want to use SPS 2003, you will have to have those solutions on different virtual servers running 2.0 and 1.1 respectively. In this manner, side-by-side is supported.
For more detail, here is a description of WSS SP2 and SPS SP2.