There are various post on this forum addressing SQL2005 and its issues. I mainly had problems with security and windows logins. Here, in brief, are the steps I followed to make it work:
Before: SQL 2000, Navision Client v4 SP2 22.214.171.12411, Navision 3.70A database
After: SQL2005, Navision Client v4 SP2 4.02.23099, Navision 3.70A database
The above steps are just a summary and believe me I went through a lot of hardship to come to this conclusion. So some of you may have done it first time but others may still be trying to figure it out. Hopefully this helps. Seems pretty straight forward now that I read it
Have you got any problems as described here: http://dynamicsusers.org/forums/thread/5115.aspx ?
I've done the restore with the native backup and it took about 36 hours for a 100 gb database. So your way is much more faster.