I've been setting up a new single box environment with SPS 2003 installed against SQL Server 2005. I first installed SQL Server and then SPS. However, when I wanted to create my first portal site, I kept getting 'Portal creation failed. Please see the portal creation log for more details.'
After messing around for a while I realised I had forgotten to install SPS Service Pack 2 which solved the problem.
Have a look here for an overview of the performance gains when using SQL Server 2005 with SPS 2003.