How do providers offer SQL Server at $5/mo? You need to become a service provider and buy volume licensing. See Licensing Options For Services Providers. Contact Microsoft for details and pricing.
As for Express and hosting, see this guidelines from the Express weblog:
Several questions have come up lately
regarding whether SQL Server Express
is an appropriate product to be used
in a hosting environment. Here are
the answers:
- User Instances (also known
as RANU) available with SQL Server
Express Edition, are NOT RECOMMENDED
for hosting environments.
- Shared hosting: SQL Server
Express Edition is NOT RECOMMENDED for
shared (multi-tenant) hosting as the
scale limits and memory handling do
not allow it to meet the requirements
of such an environment. SQL Server
Standard Edition or Enterprise Edition
are the best choice for shared
hosting.
- Dedicated hosting: All
versions of SQL Server including
Express Edition are RECOMMENDED for
dedicated (single-tenant) hosting
environments. SQL Server Express
Edition is a great way to provide a
free copy of SQL Server with low cost
Windows Server offerings. Where
customers require more advanced
features or higher scale, Workgroup
Edition, Standard Edition, and
Enterprise Edition are all options.
And there is also this whitepaper SQL Server 2005 Deployment Guidance for Web Hosting Environments.
Most of this guidance is for SQL Server 2005, but it largely applies to 2008 and 2008 R2, from a technical point of view. As for licensing questions, as always, contact an Microsoft representative.