You shouldn't have any problems with SQL2005 and VS1.x. I still use VS2003 for quite a few projects, and I've never had any conflicts between .Net 1.1 and 2.0.
Rob Farley
LobsterPot Solutions & Adelaide SQL Server User Group
Company: http://www.lobsterpot.com.au
Blog: http://blogs.lobsterpot.com.au