Extending MS CRM 3.0 is normally done using Visual Studio 2003 and this is also the only supported development environment. However, it is possible to develop using VS 2005 as well. Some things have to be considered.
.NET 2.0 will work fine for external web applications using the CRM Webservice (not very strange since the webservice is generic)
.NET 2.0 will probably also work fine when developing workflow dll:s, but it is not supported. At least it worked when I tested Hello World! :)
.NET 2.0 will not work when developing callouts. However, there is a great description of how to develop these in VS 2005 anyway but for .NET 1.1. Beware that you cannot use specific .NET 2.0 functionality.
Here is the site: http://blogs.msdn.com/arash/archive/2006/08/25/719626.aspx
A good thing with this is that the standard TDT can be used when developing customizations. I am no licensing expert, so make sure it's within your licensing agreement.
Gustaf Westerlund CRM and SharePoint Consultant