Upgrading MSDE to SQL Server Express
If MDSE was installed with an MSI setup, the existing MSDE instance is upgraded when you install Microsoft SQL Server 2005 Express Edition (SQL Server Express) with the same instance name. Use the Default instance option when you run SQL Server Express Setup. The exception to this is if the version of SQL Server Express you are installing is not English. Then, the MSDE installation you are upgrading must either be the same language as the SQL Server Express version, or it must be English.
If MSDE was installed as part of another application that used its own install program, the SQL Server Express installation program will not know about it. In this scenario, the only way to upgrade SQL Server Express is to install SQL Server Express under another instance name. Use the Named Instance option to specify a new instance name when you run SQL Server Express Setup, and then detach the databases from MSDE and attach them to SQL Server Express.
To know if MSDE was installed as part of another application, go to Add or Remove Programs in Control Panel. If MSDE does not appear in Add or Remove Programs, it was installed as part of another application. In this scenario, the only way to remove MSDE is to uninstall the application that installed MSDE. In most situations, the application users will let the application vendor deal with the upgrade.
For more information about upgrading, see "Upgrading MSDE 2000 to SQL Server 2005 Express" at MSDN library.