I was blogging about it some time in November and it seemed to be an important scenario to our Customers. I am happy to inform that there is a tool to help with targetting the .NET Framework 1.1 with Visual Studio 2005! It is called MSBee and is available as a Beta 2 on GotDotNET as a part of MSBuild Extras. Since it is a quite mature project you should be able to use it without problems.

To clarify (see: comment): MSBee is just an addition to MSBuild so it should work as well on Express Editions as on full versions.