I saw a question today on restoring a SQL Server 7 backup to SQL Server 2005, and I wasn't sure this was supported. So I went browsing through Books online and sure enough, it's supported. I ended up in the SQL Server 2008 books online first and it's not supported there, so it appears that you get to restore from the 2 previous versions at least for now.
That's good and it means that upgrades are possible through backup and recovery, which is a nice, safe way to move things around as far as I'm concerned. I always prefer having a fallback, in this case the original server instance.
Should MS support more versions? I'm not sure they should. That's a lot of backwards compatibility for them to maintain. I know it would seem simpler since they have the 70 mode in the database, but I think interpreting comments is much different from converting the file format.
However they have the code to convert 70 databases to 80. And from 80 to 90. Why not include a utility on the media that converts old backups to a newer format?