A lot of you have been asking for it, the TechNet team just published it :)
Requirements for using SQL Server 2008 Analysis Services with the Project Server 2007 Cube Building Service
and yes Project Server 2007 is supported on SQL Server 2008 as stated here (bottom of the page): http://technet.microsoft.com/en-us/library/cc197379.aspx
Office Project Server 2007 supports Microsoft SQL Server 2008. However, you must install Windows SharePoint Services 3.0 with Service Pack 1 (SP1) or later as well as Office Project Server 2007 SP1 or later before you install SQL Server 2008.
Key reasons why consider SQL 2008:
Check the related TechNet article for more information:
This 490-page white paper covers the essential phases and steps to upgrade existing instances of SQL