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I know it works fine however just wanted to have an idea regarding any issues afterwards
where as no major issues has been seen so far in such mixed domain. Depends on the configurations done as there is certainly changes in roles and settings.
In mixed environment (2003,2008) it will work without any Major issues .
yes you can set the functional level win server2003
YES (you have to know functional level. Functional level is an option in all windows releases for legacy support.