Woo! Visual Studio 2008 has a "Target Framework" setting in the projects, so you can use it to make applications which work on .NET 2.0, but still get all the IDE improvements and all that stuff. Also, most of the language enhancements (implicit variable declaration, extension methods and lambda expressions) in C# 3.0 are handled by the compiler rather than any runtime changes, so I can use all of those too.
Explanatory note: I can't move our application development to .NET 3.0 or 3.5 as those runtimes are only available for Windows XP SP2 or later, and many of our customers still have Windows 2000 systems.