Sql Server 2005 Express & Sql Server 2008 side by side

It's easier. Run the install for SQL Server 2008 on your server, choose the upgrade option. Done.

Takes maybe 15 minutes, give or take. It really is remarkably easy.

Edit: You still want to do a backup anyway right before upgrading, just in case. But more than likely you won't need it.

Express editions can only act as a subscriber in a replication topology. Your scenario should be possible, with a SQL 2005 publisher and a SQL 2008 subscriber, see Using Multiple Versions of SQL Server in a Replication Topology, as long as the SQL 2005 is at least at SP2:

SQL Server 2000 and SQL Server 2005 can both participate in replication topologies with SQL Server 2008... For SQL Server 2005 the minimum version is Service Pack 2 (SP2).