You can run two instances of SQL Server different editions on the same box - just need to name the second instance. Not sure about manangement tools though... I'd bin the express client tools and use 2008 - I use 2008 management tools for SQL 2k, 2005 and 2008 instances.
If you want to upgrade, I'd uninstall the express. Then install SQL 2008 Dev, and attach your 2005 databases to it. WORD OF WARNING You won't be able to use your 2005 databases back on a 2005 instance as when you attach it upgrades the internals of the database(s).