We always start to install System Center Virtual Machine Manager (VMM) with SQL Express. One day, you will realise that SQL Express can't cope when you have added more Hyper V Host and Virtual Machine. By default SQL Express database size is limited to 4GB.
Then it's the time to replace SQL Express with SQL Server Standard Edition. The process is quite simple and here is the step that you should take:
1. Uninstall VMM Server. Make sure you select "Retain data" to maintain the VMM database.
2. Uninstall SQL Express 2005 component.
3. Install SQL Server 2008 Standard Edition and Service Pack.
4. Copy VirtualManagerDB and VirtualManagerDB_log from C:\Program Files(x86)\Microsoft SQL Server\MSSQL.1\MSSQL\Data. to C:\Program Files\Microsoft SQL Server\MSSQL10.MSSQLServer\MSSQL\Data.
5. Use SQL Server Management Studio to Attach the database.
6. Install VMM Server Component and use existing database.
7. Once complete the installation, verify that everything is intact.
So far, Host refresh, Virtual Machine management, VMM Library, Integration with SCOM, etc is working without any problem.
[Updated: 21 Oct 2010]
By default, VMM 2008 R2 came with SQL Server 2005 Express Edition with SP3.The default limit is 4GB.
You can follow the above step 1-7 to migrate to SQL Server 2008 R2 Express edition. This will allow you to have 10GB database limit.I have tested this scenario and it is working like a charm.