Hi,
Not really sure I understand your problem. As most DNN configuration work is done using the DNN tools on localhost or your development server, I'm guessing that you have been writing custom modules in VS2008 and that the .net 3.5 framework components that have been added to your web.config are the problem. Is that right?
If this is your problem, it should be a relatively simple matter of removing the .net 3.5 references from your project by deleting them from your "references" section and replacing them with .net 2.0 versions where required (remember that the ASP.NET libraries themselves are still .net 2.0 in .net 3.5 - your problem is probably being caused by VS2008 putting default references to .net 3.5 components such as LINQ etc into your code, or if you started to use AJAX Toolkit 3.5 components). You will also have to remove and "using" statements in your code that reference these dll's. You may want to also manually look through your web.config file for any references that haven't been removed automatically during this process. There are a number of examples of how to do this - just google "
downgrade asp.net to 3.5".
This will work for your own code and custom modules. You may have issues with 3rd party modules if they rely on .net 3.5 components. You would have to contact each vendor in this case to see if they have .net 2.0 friendly versions.
As you can probably see, this is all achievable but will potentially give you a bit of a headache. The far simpler solution would be to change hosting providers to one that supports 3.5, which is a very simple process as there are LOTS to choose from and it's a simple process to point your domain at a new provider. My company is currently using discount asp .net, who are very cheap ($20 p/m for hosting and DB) and seem to be good enough for our "evaluation" purposes. If you need a "performance" hoster, the general consensus appears to be powerdnn, although I'm sure you'll have no shortage of people posting here to recommend their own provider company.
Hope this helps.