<p>I'm working on a big .NET 1.1 project, and there exists a wish to upgrade this, majorily to be able to use better tools like Visual Studio 2008, but also because of the new features and smaller amount of bugs in the .NET 2.0 framework.</p>

<p>The project consist for the bigger part of VB.NET, but there are also parts in C#. It is a Windows Forms application, using various third party controls. Using .NET remoting the rich client talks to a server process which interfaces with a MSSQL 2000 database.</p>

<p>What kind of issues can we expect in case we decide to perform the upgrade?</p>

Nothing, really.  You'll find a couple warnings on compilation about obsolete methods, but often those are trivial to fix.
You should shoot big and go for 3.5.  The water is niiiiiiice in here.