run profiler to capture before running the proc and review the trace file, that should give you more details whats happening.

I have encounterred issues with having 2 version of clients, most of the time sql200o client shows weird character while scrolling, I would suggest to go with SQL2005 client.

Before you start testing, Run the upgrade advisor which would good idea what would be the issues and work for resolution. I have done couple of inplace upgrade on production box,...