One of the discussion lists that I participate in, had a brief discussion this morning about whether or not it's possible to perform log shipping between differernt versions of SQL Server. Specifically, can you do log shipping between SQL Server 2005 and SQL Server 2008?
SQL Server does support restoring earlier version databases on later versions of the product. The databases get upgraded along the way when you perform restores of databases. SQL Server also allows you to restore transactions logs from earlier versions of the product but (as Robert Davis points out in the comments below), the upgrade doesn't happen until recovery of the database occurs. And that's why you can't use STANDBY mode in this situation.
So, you can set up log shipping between versions, however things aren't that simple. Log shipping is often used to provide a warm standby. If you use it in this way and you need to fail over to the standby server, you now have now way to swap the log shipping roles, as you can't then log ship back from the 2008 server to the 2005 server.
If you are performing a one way log ship, intentionally, this might be quite acceptable to you. I often see log shipping used when servers are being upgraded from one version of SQL Server to another version, even side-by-side. When it's time for the swap to the new server to happen, the final logs just need to be moved and this takes very little time. There are other reasons as well as to why you might be happy to just have a one-way log shipping operation.
The main point is that you need to consider why you are performing log shipping before you do this. If it's with a view to swap roles from primary to secondary and back, then log shipping between versions isn't for you.