If you are not happy wih your existing SMS 2003 infrastucture (Collection structure, packges setup etc tc), I would go with the method NJ suggested, Otherwise, i dont mind his initial approach, which in more detail i would presume would go as follows:
Create a new SMS primary
Make the new primary a chlld of the old primary to let Collections/Packages/Reports etc flow down
Break the relationship
Upgrade the new SMS 2003 server to SCCM
Make the old primary a child of the new SCCM server to let the clients flow up
Change site boudaries/Reassign the existing clients to the new primay
Key points I guess are:
Client information flows up the heirachy,
Collections/Packages/Advertisemetns/Reports etc flows down the heirach
A client will NEVER change sites unless you force it too
I've done quite a few SMS 2003 to SCCM 2007 upgrades now, and I must admit that I've never followed the approach above. I've either done in-place upgrades (with very few issues), or created a brand new primary, and used a computer startup script to upgrade and reassign the clients.
I point worth mentioning is that even though you should not overlap boundaries (and it's NOT supported), you CAN overlap boundaries. From memory (I've done one of these before but it was awhile ago), is to changes your boundaries on the SMS 2003 heirachy to be IP Subnet based, and as you are ready to migrate clients to the SCCM infrastructure, assign boundaries as AD Subnets to the SCCM infrastructre.
This keeps clients reporting to the SMS 2003 site right up to the point that you upgrade the client and change their site assignment. The reaon this works is that SMS/SCCM will prefer AD Site Boundaries over IP Subnet boundaries (From memory .. it could be the other way around!)