Is it very difficult to update from sql2k to sql2005 in cluster box without
SAN.
If not what should I be aware of during the upgrade process.

Thanks,

Going from a stand-alone SQL 2000 environment to a clustered SQL 2005
environment is a big step.  I would hesitate to do both steps at once, and I
have had a lot of practice at version upgrades and cluster installations.  I
also don't like upgrades, especially on a cluster.  I strongly prefer
systems built with only the current versions.  Also, there have been some
reports of difficulties with the cluster upgrade process for SQL 2005.  I am
reluctant to recommend it until I can do some more testing.

In theory, you can log ship from SQL 2000 to SQL 2005, but I would set up a
test environment and make sure.  You will have to use your own scripts to
manage log shipping, neither of the built-in versions will work.