When you open up your web.config file, you also see a <xhtmlConformance/> element within it like so:
<xhtmlConformance mode="Legacy" />
ASP.NET 1.0 and 1.1 didn't emit XHTML compliant markup from many of its server controls. ASP.NET 2.0 changed this and by default emits XHTML compliant markup from all controls (note: you can learn more about ASP.NET 2.0's standards compliance from this excellent MSDN article).
One of the things we noticed in the early ASP.NET 2.0 betas, though, was that when upgrading customer applications a lot of the applications had assumptions that the page output was not XHTML compliant. By changing our default output of the server controls to be XHTML, it sometimes modified the visual rendering of a page. For backwards compatibility purposes we added the <xhtmlConformance> switch above that allows developers to render controls in "Legacy" mode (non-XHTML markup the same as ASP.NET 1.1) as well as Transitional mode (XHTML Transitional) as well as Strict mode (XHTML Strict).
By default when you use the VS 2003->VS 2005 Web Project Migration wizard (for both web sites and web application projects), your web.config file will have the legacy switch added.
Unless you know of known issues that your site has when running in XHTML mode (and which you don't have time yet to fix), I'd always recommend removing the <xhtmlConformance> section from your web.config file (or you can explicitly set it to "Transitional" or "Strict").
Hope this helps,