AFAIK SQL Server 2005 <b>Express Edition</b> is a free product, so maybe what they are offering for free is the upgrade process itself. I think you should not have network problems (just be sure to enable network connectivity, because I think these settings are turned off by default in that version), but might want to check what other limitations this version may have (for example I remember have read that it only supports 1 GB of RAM, and only 1 processor, but I may be wrong on this)
I think there is a 2008 Express Edition version now, so you might want to use this instead.
General rules apply to database upgrades. Most specifically if it ain’t broke don’t fix it.
If SQL 2000 Express edition is doing everything you need then there is no compelling reason to upgrade. Just because there is a new version of the database platform available doesn’t mean you should upgrade. I know people who are still using SQL 6.5 in production.
By upgrading you will also loose the SQL Server Agent, so any scheduled jobs won’t work.