Hey Margaret - How you been?
This is a shot in the dark but worth asking... When you installed VSS on W2K3 did you install it with the Database Upgrade Option? I forget what the question is exactly but I think you're supposed to answer 'No'. You would have answered 'Yes' to a fresh install where you don't need backwards compatability.
Another problem which I've ran into in the past is that if the database is just too big VSS (no matter what version - on sizes over 1.5GB) it seems to hang on actions like backing up, restoring, archiving, etc... What you'll have to do is perform your actions on smaller chunks of the database. Perform actions on projects instead of the whole database.
Good luck! Hope it helps... Say hi to Tim and all those that still remember me.