By defualt asp.net 2.0 handles custom 404 redirects badly. (link) Basically, when using custom error pages .net still returns status code 200 (found) which can have adverse effects on your search engine rankings. The status code should be 404. You can view this phenomenon by using the LiveHttpHeaders Plugin for Firefox.
This is the solution I found that worked for me.
I couldn't find this discussed elsewhere on these boards so I thought I would share.