I've seen several posts around installing VS 2003 where VS detects a reboot is required before it begins the install.

Customer rebooted the box, relaunched VS, and again, they're told a reboot is required.

This problem is documented and a workaround is available at:

http://support.microsoft.com/default.aspx?scid=kb;en-us;830608

I have not seen any reports of this issue with VS 2005.