The OneNote 2007 file format is quite different to the 2003 format. Here are some details on the implications of this and the reason behind the difference.
The simple reason is to support new features. OneNote is still a relatively young app and we made some dramatic improvements in 2007 (our second release). In particular we added a pretty unique sharing capability that allows multiple users (or same user with multiple machines) to interact and edit the same notebook at the same time without getting locked out by each other or writing over each other. OneNote automatically handles merging and so on. To do this while retaining high performance, and autosave required some significant innovation in the file format. Among other things, we need to support multiple clients writing to different parts of the file at the same time through range locks rather than a whole file lock. This kind of interaction between OneNote 2007 and 2003 clients (which were not designed for it) was simply not possible, and would not have been possible among 2007 clients without changing the file format. Hence we concluded pretty early the need for a file format change.
In addition to that, we have a lot of new features that weren't supportable in the OneNote 2003 format. Among other things, they include:
We understand this issue will cause inconvenience for some, and trust me we did not take this decision lightly. It was a very difficult and painful decision. We do think the improvements in OneNote 2007 are pretty dramatic and compelling and were worth the change. Thankfully many of our beta users seem to agree. Also the upgrade pricing for OneNote is reasonable, so given the compelling improvements we expect as most people upgrade (particularly those who want to share with other machines), this will quickly become less of an issue.
On a final note, rest assured that we are very committed to file format compatibility as a goal for future OneNote versions.