One question I'd like to ask is what are the features of .NET 3.5 that you'd like to use? Many of the hyped features are actually C# 3.0 features, not features specific for .NET 3.0/3.5 and since C# 3.0 uses the same CLR as .NET Framework 2.0 you are free to use them in your 2.0 applications too. This only requires VS 2008.
Examples are:
- Lambda expressions
- Object initializers
- Anonymous types
- Local variable type inference
- Extension methods
I use many of these in my own .NET 2.0 projects without problems.
If there are framework specific features you want (like Linq, WPF, etc), then you'd have to upgrade.