1. I note the runtime is still 2.0-based.
3.5 is the extension of 2.0. That's why the base framework is 2.0.
.net IDE will convert it to 3.5 by itself. Just click on yes
2. Are there any "gotcha's" anyone can think of to be concerned with a web-application conversion?
Not at all
3. Any other issues or thoughts anyone has after having done such a conversion themselves?
Already answered
Just convert it. You will not find any issue. :)