DPM 2007 supports the use of iSCSI dynamic disks on Windows Server 2003, however, it isn't quite as straight forward as it is in Windows Server 2008.
In Windows Server 2008 you can add your iSCSI disks to the DPM server, make them dynamic and then add the disk into the DPM storage pool and you're done.
In Windows Server 2003 you follow the same steps but when rebooted the server, you'll notice that all your iSCSI disks are offline. The disks can be brought back online manually in disk management but this is not really a practical solution, the disks can also be brought online by opening the DPM console on the server, but again this solution is equally impractical.
To resolve the problem, change the start up type of the DPM service to Automatic. By doing this, your iSCSI dynamic disks will be brought online automatically after reboot.
Easy fix I know but it is not documented anywhere (as far as I can find anyway), it is only documented that DPM supports iSCSI dynamic disks on Windows Server 2003.
One final point thought though, if you are deploying DPM seriously consider using Windows Server 2008 x64 as the base Operating System as not only will you have better performance but you'll also be fully prepared to upgrade to DPM 2010 next year. DPM 2010 will only be supported on Windows Server 2008 x64 so to avoid any upgrades, rebuilds and all the associated problems that cam with upgrading and rebuilding, use Server 2008 x64 if you can !