Update: Please see my newer blog entry where I talk about our migration experience.
After going back and forth about how we are going to migrate our SharePoint 2003 intranet to MOSS 2007, we decided on using the content database migration approach. The reasons we went with this approach were:
1) We are moving to a different hosting center because our relationship with the current one is going south. We are also moving to the 64 bit architecture as this will help performance.
2) We have over 100 GB of data, but the majority of data is stored in WSS site collections, not in SPS areas. We only have a few areas and we are willing to lose those, as they do not come over as part of the migration. We also have a few custom site definitions - but we are only interested in upgrading a couple of them. For the ones we want to upgrade, I have written custom site definitions as well as the upgrade definitions that will tell MOSS what to do with that template when it encounters it.
3) We have tried a couple of trial runs of the migration - and things migrated over pretty well for the most part. For what came over and what did not, look for a blog in the near future.
4) Microsoft does not recommend the inplace upgrade because if something went wrong during the migration - you are pretty much hosed.
5) We did not want to go with the gradual migration approach as well because there was signigicant risk in our mind. Some of the risks include installing both MOSS and SharePoint 2003 on one production server, performance issues this may cause, we were running out of disk space on that server, we wanted to move to a different data center etc.
Those were the reasons. I attended TechEd 2007 and sat through Shane Young and Joel Oleson's migration session. They actually recommend using gradual upgrade option for the most scenarios - unless your database was too large or you wanted to move out of the data center. As you can see above, our case warranted that we go with the content database approach. You should pick one of these approaches, but carefully outline the reasons you are going with either one. This will help you in the long run and ensure a smoother migration.