.NET 3.5 SP1 and VS 2008 SP1 contain a bunch of feature improvements targeted at web application development. 

The VS Web Dev Tools team has more details (including specific bug fix details) on some of the VS specific work here.  Below are more details on some of the work in the web-space:

ASP.NET Data Scaffolding Support (ASP.NET Dynamic Data)

.NET 3.5 SP1 adds support for a rich ASP.NET data "scaffolding" framework that enables you to quickly build functional data-driven web application. With the ASP.NET Dynamic Data feature you can automatically build web UI (with full CRUD - create, read, update, delete - support) against a variety of data object models (including LINQ to SQL, LINQ to Entities, REST Services, and any other ORM or object model with a dynamic data provider).

SP1 adds this new functionality to the existing GridView, ListView, DetailsView and FormView controls in ASP.NET, and enables smart validation and flexible data templating options.  It also delivers new smart filtering server controls, as well as adds support for automatically traversing primary-key/foreign-key relationships and displaying friendly foreign key names - all of which saves you from having to write a ton of code.

You can learn more more about this feature from Scott Hanselman's videos and tutorials here.

ASP.NET Routing Engine (System.Web.Routing)

.NET 3.5 SP1 includes a flexible new URL routing engine that allows you to map incoming URLs to route handlers.  It includes support for both parsing parameters from clean URLs (for example: /Products/Browse/Beverages), as well as support to dynamically calculate and generate new URLs from route registrations.

This new routing engine is used by both ASP.NET Dynamic Data as well as the new ASP.NET MVC framework.  It will support both WebForms and MVC based requests. 

ASP.NET AJAX Back/Forward Button History Support

.NET 3.5 SP1 adds new APIs to ASP.NET AJAX to allow you to better control the history list of a browser (enabling you to control the behavior of the back/forward button of the browser).

You can learn more about this feature in the article here and the screencast here.

ASP.NET AJAX Script Combining Support

.NET 3.5 SP1 introduces a new <CompositeScript> element on the <asp:ScriptManager> server control, which allows you to declaratively define multiple script references within it.  All the script references within the CompositeScript element are combined together on the server and served as a single script to the client, reducing the number of requests to the server and improving page load time for ASP.NET AJAX applications.

The script combining feature supports both path based scripts and assembly resource based scripts, and dynamically serves up the combined scripts using the ScriptResources.axd handler.

Visual Studio 2008 Performance Improvements HTML Designer and HTML Source Editor

In February we released a HotFix roll-up that included a number of performance improvements and bug fixes for the VS 2008 Web Designer.  VS 2008 SP1 includes all of these fixes, as well as a number of additional performance improvements.

Visual Studio 2008 JavaScript Script Formatting and Code Preferences

Visual Studio has for several releases supported rich source code formatting options for VB and C# (spacing, line breaks, brace positions, etc).

VS 2008 SP1 adds richer source code formatting support for JavaScript as well (both inline <script> blocks and .js files).  You can now set your JavaScript coding preferences using the Tools->Options dialog:

Figure 1

These preferences will be automatically used as you type new Javascript code in the source editor.  You can also select existing code, right-click, and choose the "Format Selection" option to apply your style preferences to existing JavaScript code.  You can learn more about this new feature here.

Better Visual Studio Javascript Intellisense for Multiple Javascript/AJAX Frameworks

VS 2008 includes JavaScript Intellisense support in source view.  The intellisense support with the initial VS 2008 release works well with vanilla JavaScript as well as code written using the ASP.NET AJAX JavaScript type patterns.  JavaScript is a very flexible language, though, and many JavaScript libraries use this flexibility to full advantage to implement their features - sometimes in ways that prevented the intellisense engine from providing completion support.

VS 2008 SP1 adds much better intellisense support for popular JavaScript libraries (we specifically did work to support JQuery, Prototype, Scriptaculous, ExtJS, and other popular libraries).  You will get better default intellisense when you reference these libraries.  We are also looking at whether we can maintain additional intellisense hint files that you can download to get even better intellisense and documentation support for some of the more popular libraries.

Below is an example of using a JQuery startup function with the VS 2008 SP1 JavaScript intellisense engine:

Figure 2

Notice below how VS 2008 SP1 can now provide method argument completion even on chained JQuery selectors:

Figure 3

Visual Studio Refactoring Support for WCF Services in ASP.NET Projects

VS 2008 SP1 adds better refactoring support for WCF services included within both ASP.NET Web Site and ASP.NET Web Application Projects.

If you use the refactoring support to rename the class name, interface contract, or namespace of a WCF service, VS 2008 SP1 will now automatically fix up the web.config and SVC file references to it.

Visual Studio Support for Classic ASP Intellisense and Debugging

Previous versions of Visual Studio included support for intellisense and debugging within classic ASP (.asp) pages.  The file and project templates to create classic ASP pages/projects hasn't been in VS for a few releases, though, and with the initial VS 2008 we incorrectly assumed this meant that people weren't still using the classic ASP support.  We heard feedback after we shipped that indeed they were. 

With VS 2008 SP1 this support for classic ASP intellisense and debugging is back:

Figure 4

Visual Web Developer Express Edition support for Class Library and Web Application Projects

The Visual Web Developer 2008 Express edition (which is free) is being updated in SP1 to add support for both class library and ASP.NET Web Application project types.  Previous versions of Visual Web Developer Express only supported ASP.NET web-site projects.

Among other benefits, the support of class library and web application projects will enable ASP.NET MVC and Silverlight projects to be built with the free Visual Web Developer 2008 Express.  All of the above JavaScript, Dynamic Data, Classic ASP, and AJAX improvements work with Visual Web Developer Express as well.