DNA (6/30/2009)
Also, it does not stop you using features that are above the compatibility level you have set - so if you were to set the level to 8 then 2005 features would still be available to you.
Not 100% true, it does stop you from doing some things e.g. UDF's weren't available in SQL Server 7, and if you set compatibility to 70 and try to create a function, you get a syntax error.
But, CTE's were introduced in SQL 2005, and if you try to use them with compatibility set to 80, it works!!