I'd assumed that Visual Studio 2008 would be able to open 2005 projects and manage them alongside any new 2008 projects.

This isn't quite correct - 2008 will upgrade 2005 projects, but those projects can still target the .NET 2.0 runtime. There is a difference!

So if you've got a team project where not everyone is moving to 2008, best keep using 2005 on it.