If you're upgrading from SMS 2003 to System Center Configuration Manager 2007 you have a couple of choices. What should you do, an in-place upgrade or a side-by-side migration? The answer is, it depends. Both options are available to you, but in either case you need to do some research and planning before you proceed. We have some great resources available in the System Center Configuration Manager TechCenter Library (see links below).
So, if you're wanting to do any kind of consolidation of SMS 2003 sites, or want to make changes to the the existing site hierarchy reporting structure, or simply want to upgrade server hardware during a site hierarchy upgrade, the side-by-side upgrade method if the choice to make.
If you want to just leave the SMS hierarchy as is and the site server hardware is can be upgraded to System Center Configuration Manager 2007, then the in-place upgrade is the way to go.