Moving away from CodeGear/Borland tools basically eliminates any Delphi .NET based solution and a total rewrite of your application.
I hope my answer below helps with your decisions.
From experience (having rewritten a Delphi application with a team of people) it boils down to either of two choices below.
But first a warning: you will take at least the total development effort it took to write your current Delphi application.
In our case, this effort was warranted since the old Delphi application (which in fact it was Kylix) had an end-of-life because of various reasons.
Our rewrite consisted of two parts: rewrite with limited extra functionality followed by a lot of extra functionality (the design of the first part already took the second part into account).
Back to your choices:
1- a total rewrite in C# or VB.NET in Visual Studio
2- a partial reuse of your existing Delphi business layer code by using Oxygene from RemObjecs (a Visual Studio plugin with a syntax that is very similar to the Delphi syntax). CodeGear will offer Prism soon (likely before the end of 2008), which will also integrate into Visual Studio.
Because .NET data access and UI are totally different from Delphi, you will have to do these from scratch (both for scenario 1 and 2). Visual Studio 2008 offers a lot of benefits here over Visual Studio 2005.
There is no such thing as doing this migration gradually, since you do a complete platform change here, it is an all or nothing approach.
Both scenario's will take a considerable amount of time (even though you have Delphi experience, getting yourself accustomed in the .NET world will take time).
Visual Studio can interact with Crystal Reports, and goes well with SQL Server.
Since Visual Studio 2008 offers a lot of benefits (not only .NET 3.5, but also productivity wise), you'd better go with that.
On the UI side, you need to make a balanced choice between WinForms (aka Windows Forms) and Windows Presentation Foundation (aka WPF).
If it is a 1-to-1 rewrite, you might want to stick with WinForms as it is familiar to what you have. You probably need to use some 3rd party components to get your UI going; DevExpress is a good choice here as they have similar components in Delphi and Visual Studio.
But if you want to go for future eye candy, then you might consider WPF. Be prepared for a steeper learning curve here than WinForms as it is very different from what you are used to.
If you decide to stay with Delphi, you might want to look into VCL for the Web (aka IntraWeb) and into Delphi 2009 (a lot has changed in the Delphi world since Delphi 7 was announced 6 years ago).
Good luck making your choices!
--jeroen