I've installed SQL Server 2005 on my development machine (which already has the Developer Edition of SQL Server 2000 installed) and the process very smoothly.  My old SQL Server 2000 instance was named the "default" instance, meaning that I had to create a named instance for SQL Server 2005.  Other than that, the installation process went without a hitch ...

One nice feature is that the new SQL Server Management Studio allows me to connect to both versions of SQL Server and browse a list of database objects both in the SQL Server 2000 and SQL Server 2005 databases.  Presumably, it can connect to SQL Server 7 databases as well ...