I had trouble getting my ASP.NET 3.5 web site to work after installing .NET 3.5 on my server. You can't choose between .NET 2.0 and 3.5 in the asp.net tab in IIS; both run under 2.0. I had to add this section to my web config:
<system.codedom>
<compilers>
<compiler language="c#;cs;csharp" extension=".cs" compilerOptions="/warnaserror-" warningLevel="4" type="Microsoft.CSharp.CSharpCodeProvider, System, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089">
<providerOption name="CompilerVersion" value="v3.5"/></compiler>
<compiler language="vb;vbs;visualbasic;vbscript" extension=".vb" compilerOptions="/optioninfer+" type="Microsoft.VisualBasic.VBCodeProvider, System, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089"><providerOption name="CompilerVersion" value="v3.5"/>
</compiler></compilers>
</system.codedom>
Finally it would compile my code with the new .NET 3.5 language features. New web.config files created in Visual Studio 2008 have this section, but it must be added to existing web sites before they will compile.