<p>I found <a href="http://www.microsoft.com/sql/technologies/reporting/rsfeatures.mspx" rel="nofollow noreferrer">this</a> extremely old document which appears to say that many of the web client features are not availiable when running on express edition--scheduling, subscription, etc--as well as no access to the report builder. Is that information still current, and are there any other features which are unavailable?</p>

Subscriptions and scheduling are indeed absent in both MSSQLEx2005 and MSSQLEx2008, but I have never found this to be much of a problem. The underlying platform has a scheduler and the web service will do all the rendering, so you can recreate the missing elements without too much trouble.
The report builder is also absent, and
this
is non-trivial to replicate. You could always install SQLEx locally and let them use BIDS. Or you could stop being cheap. It's pretty good for free.
I recommend you use SSRS2008 rather than 2005 because it no longer requires IIS, and there are several sexy new capabilities in the report engine. In particular it now supports flow-based rich text with inline fields for mail-merge type reports.
Compatibility is excellent but some applications reject a newer database engine version. If this is a problem, continue to use SQLExpr2005 for the database.
So, are you saying that A) SSRS 2005
  requires IIS whereas 2008 does not,
  and that B) SSRS2008 is backwards
  compatible with a SQL2005 database?
  (It sounds like you might be saying
  that SSRS 2008 could be used with
  somebody running 2005 DBs
Yes, I am indeed saying that
SSRS 2005 requires IIS whereas 2008 does not
SSRS 2008 is backwards compatible with a SQL2005 database
SSRS 2008 could be used with somebody running 2005 DBs, or even 2000 DBs.
You can use SSRS with any database server for which ADO.NET drivers are available, including Oracle and MySQL.