Is SQL Azure compatible with SQL Server 2000 or SQL Server 2005

SQL Azure is only compatible with SQL Server 2008 and SQL Server 2008 R2. Prior to migrating your database to SQL Azure you should first upgrade it to run on SQL Server 2008 or SQL Server 2008 R2.   You can use  SQL Server 2008 Upgrade Advisor to test   database compatibility prior to migrating to SQL Azure.

The SQL Azure Migration Wizard is a very good tool for testing the compatibility between SQL Server 2008 and SQL Azure. Additionally this migration tool can analyze SQL Profiler traces to check the compatibility of the T-SQL statements generated by the app.