>>Alex, I'm a bit confused by your 'Except...'. Are the compilers no longer going to be part of the .Net Framework? If they are, then why should it be upset by new constructs etc.? Are there objects that are specific to the IDE that the compilers and framework won't understand? How could that work?

No. You misunderstood. The compilers are part of .Net of course. What I meant is that the VS 2003 editor will not know about the .Net 2.0 compiler. My guess (I am no expert on .Net) is that VS 2003 will attempt to compile as .Net 1.1 (which is a separate install and coexists with 2.0). Therefore any new command,object,syntax you use will not be understood by VS 2003. That's why you have a better,more powerful and newer VS 2005 (now in Beta) available.

So,to better answer the original question: yes it is required as VS Studio 2005 and VS.Net 2.0 go hand-in-hand. But if you do not want to invest in VS 2005, you can still use Notepad and run the compiler separately (as a command). Hope I'm clear.