Question : How do i create a SCOM 2007 SP1 cluster?

I am trying to setup an SCOM 2007 SP1 cluster in active/active configuration. Does anyone have any experience in this area, as to how to go about this? I have the root all setup and configured, just need to figure out a mechanism to configure failover.
Any insight is appreciated

Answer : How do i create a SCOM 2007 SP1 cluster?

>when I install the management server should I install the SQL 2005
>database or just point to the existing RMS SQL database.

You need to point to the existing one.  You only have one operations database and one data warehouse per management group.  

> as my RMS also holds the database, so to move the RMS
>I will need to move the database as well

This is one of the problems with your particular failover scenario. If your RMS hardware dies, your database is also gone for the duration. All-in-one installations on a single server will always give you a single point of failure. The ideal way to setup for redundancy/failover is to host your SQL databases separately on their own SQL cluster/s.  

No matter which way you go about it, you will need your encryption key to get your "new" RMS promoted so make sure it is backed up using the securestoragebackup.exe tool and stored somewhere you can get at it in an emergency.

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