<p>I am working on a web application that was recently converted from Visual Studio 2003 to Visual Studio 2008.  The application contained some web services that were written using the .NET 1.1 Framework and Web Service Enhancements 2.0.  They were converted to the .NET 3.5 framework using the VS 2008 Conversion Wizard Tool.</p>

<p>A client application which is still written using the .NET 1.1 framework has a reference to the updated web service and try to consume the web service and received the following error:</p>

<p>System.Web.Services.Protocols.SoapException: Server did not recognize the value of HTTP Header SOAPAction: (web service URI)</p>

<p>The URL Behavior is set to static for the reference and the proxy class inheritance was changed from System.Web.Services.Protocols.SoapHttpClientProtocol namespace to Microsoft.Web.Services2.WebServicesExtension namespace</p>

<p>If you need additional information or need to see some source code, please let me know.</p>

Does the web service work otherwise?  Is it possible your new updated 2.0 web service exists in the same application domain as a 1.1 application?  In that case you'll want to make your own app-domain.
If its not local try using Fiddler to see everything that is going back and forth.