Ah ha. Turns out that after your install Dot Net 3.0 on your SBS2003 server ( prior to installing SharePoint 3.0 ) you need to reboot even if it doesn’t ask you to. For some reason our initial install didn’t ask for a reboot and we proceeded on with the SharePoint 3.0 installation.
So there you go. Step 1 – install Dot Net 3.0. Step 2 Reboot, Step 3 install SharePoint 3.0 and then carry on with the configuration.
We are happy to say that it is all up and running now and we are happily working with SharePoint 3.0 on SBS2003R2.