SQL Server 2005 Huge DB issue
Shrinking the database will allow for you to give back some space to the O/S, but that space comes at a performance cost as the shrink activity fragments the database. You can fix this by rebuilding your indexes, but that usually causes the space to be reclaimed. And the ides that a shrink would be a solution is false, because you are not addressing the growth issue itself, you are merely trying to put a bandage on a sucking chest wound.

Placing your files on disks that can be expanded easily is your best bet. External storage works well (or a SAN, if possible). You cannot use a UNC path for your database files, but you could use DFS to mount a drive and point to a network location and everything would work fine.

HTH