Is your web project a remote front page web? Web Application Projects can't directly open or edit remote frontpage webs. Only Web Site projects can directly edit FrontPage webs, consequently migration will convert FrontPage webs to Web Sites.
If this is indeed your scenario, and you want to use Web Application Projects you'll need to copy the remote web locally and configure it as a local IIS web in VS03. Now when you open the project in VS05 you will get the Web Application Project migration. If you don't want to use IIS locally you can always convert it to new File based web after migration. This will use the embedded server aka Cassini.
You can then use the Publish Web feature of Web Application projects to push your applicaiton up to a remote site using FrontPage server extensions.
If your project is not a FrontPage web then I'll need to get more information on what might be causing the migration not to kick in.
Thanks, Brad