AFAIK VS2008 only allows you to build .NET 2.0/3.0 out of the box, but...
I have VS2005 projects spitting out .NET 1.1 assemblies for WSSv2/SPS2003 and .NET 2.0 for WSSv3/MOSS2007 using MSBEE and I would think that this is possible in VS2008 also.
You will need to use MSBEE http://www.codeplex.com/Wiki/View.aspx?ProjectName=MSBee
Working with .NET 1.1 with Visual Studio 2008
You will also need to master some MSBUILD ninja moves to keep a 1 step build process and keep yourself sane http://brennan.offwhite.net/blog/2006/11/30/7-steps-to-msbuild/
I will be upgrading to VS2008 in the next few weeks and will post an update here.
I've created .net 2.0 assemblies using vs2008, and linked with sharepoint 2007 libraries and then deployed on sharepoint servers. You won't be able to create .net 1.1 assemblies with vs2008 out of the box - so if you need to target .net 1.1 your best bet is to stick with a virtual server setup.
Developing for sharepoint on vista (or xp for that matter) is challenging because you can't debug line by line unless you attach remotely to server2k3. My recommendation for sharepoint developers is to install virtual server on vista, and then install vstudio on the virtual server with sharepoint. If you are going to do this, you can stick with your current version of visual studio, and then debugging is much easier than from vista.
Depending on whether your company has an msdn subscription, this can be more costly if you have to buy a virtual server license, etc... but it is well worth it to make development easier, in my opinion.
SharePoint 2003 is built on top of .NET 1.1 and only Visual Studio 2003 supports it. I would recommend you not to use anything else.
I would advise you to create a virtual machine with SharePoint 2003 and Visual Studio 2003 and develop everything inside VM. This approach can be helpful if you are working on a project for a customer you can use this machine as replica of your customers environment.
