We have decided to develop all our stored procedures and functions for our project using SQLCLR. The main reason for this is maintainability and version control. Unfortunately it seems like we cannot use LINQ to ease the development of the sql-statements as the .NET 3.5-assemblies is not on the approved list in either SQL 2005 or 2008. I hope they will test the assemblies and fix this in service pack soon.
I submitted a bug for Visual Studio 2005 regarding the server settings for Web Application Project projects. This bug caused us a lot of problems as we are four developers doing all development on a single server using Remote Desktop to access it. Now when we have switched from VSS to TFS this doesn't cause us so much problems as each user can check-out the project file without locking it exclusively. We will soon switch from VS 2005 to VS 2008 and then we will not have this problem at all.
UPDATE! This issue is also fixed for VS 2005, see this post Tips & Tricks- Web Server Settings for Web Application Projects now can be stored per user as well
I've played around some with LINQ now when .NET 3.5 is released and I have to say that I think it is great! LINQ will definitely be a great boost for smaller development shops and small IT departments where there is a need for a to build small internal applications quickly. For large scale development I'm not as sure if it will be used that much as there is already a lot of different solutions for handling the data access (CSLA.NET, nHibernate, SubSonic etc.).
I've also found the tool LINQPad which seems to simplify LINQ development. Here is a screenshot from it.