Be aware that .NET 3.5 (and you should be using 3.5 SP1) is just a pair of service packs, as far as .NET 2.0 is concerned - it includes .NET 2.0 SP1 and .NET 2.0 SP2. It includes .NET 3.0 SP1, which you don't care about, since you are not using .NET 3.0.
All the rest of it is a set of assemblies that are in addition to the assemblies used by .NET 2.0. Obviously, your .NET 2.0 code doesn't use these new assemblies, so the fact that the new assemblies exist on a particular computer won't matter to the .NET 2.0 applications.
This means that it's perfectly safe to target .NET 2.0 using VS2008 (SP1), but that you can use any of the new features in a given program, without compromising the .NET 2.0 part of the application.
The value add comes from the improvements in Visual Studio itself. The XML editor by itself is worth the upgrade, in my opinion, and I've advised people several times that if they want a good, free XML editor, they should get Visual Studio Express 2008!