I used this method in a very simple configuration. I had one Windows 2003 server/forest/domain controller with a few XP/Vista clients.

From the Windows 2003 Domain Controller:

Bring up “Active Directory Domains and Trusts”, from Administrative Tools.
Right mouse click on the domain name (usually a “.local” name), and click on “Raise Domain Functional Level”.
Change the level “Windows 2003”. Note: This is not reversible and you are warned in the application as well.
Next, right mouse click on “Active Directory Domains and Trusts,” and click on “Raise Forest Functional Level.”
Change the forest level to “Windows 2003” as well. Note: This is also not reversible.
Next, copy the source/adprep directory off the “Windows 2008 Server” CD to a your Windows 2003 domain controller.
From the copied adprep directory, execute adprep /forestprep.
Then, execute adprep /domainprep.

At this point, you can run dcpromo from your Windows 2008 server. However, you need to make sure you have the “Active Directory Domain Services.” role installed.

I have run a DNS issue, and have not been able to get dcpromo to complete. Will update when I get it to work.