SQL Server Linked Server error and Query Problem
Need some more information for the Linked Server error - asked a question in a comment for more info there and will clean this up based on your thoughts there. Though it appears as though you are experiencing issues with kerberos delegation on the face of it. (More info here)

For the second question - it sounds like you are just asking how can that user connect directly to the SQL2005 instance without using a linked server. If I've understood correctly - you just grant their login access to the SQL Server 2005 server (either a SQL authenticated login or a domain login) and grant them the database and server access they need. Then they can use SQL Server Management Studio or whatever tool you use to connect and connect directly.