How to upgrade a SQL 2000 Database to SQL 2005 - need confirmation?
Since you are using the Backup/Restore method, you don't need to copy the database (mdf) and log file (ldf) to the new server, just the backup files. You do not need to recreate the database either. The database, database files and log file will all be created during the restore process.  The upgrade process is done by SQL Server when restoring your database backup. 

Here is the method I use:  

On SQL Server 2000


Perform a full backup of the database
Perform a log backup of the database 
"captures records on the transaction log that were written since the last transaction log backup".  Consider using the WITH NORECOVERY option, if you don't want people accessing the database after you're done.
Copy the full database and log backup files to the server that has SQL Server 2005


On SQL Server 2005


Restore the full backup with NORECOVERY
Make sure you change the directories as mentionned in your post.
Restore the log backup with RECOVERY


Once the database is restored on the new server.  I run the following commands in a new query window


USE [mydb]
sp_updatestats -- updates statistics
This is because statistics are not automatically updated during the upgrade process.
DBCC CHECKDB WITH DATA_PURITY 


Causes DBCC CHECKDB to check the database for column values that are not valid or out-of-range.  This is important when upgrading from SQL Server 2000 to 2005 or 2008.

Associating database users with Logins

Now that your database has been restored, you need to associate its orphaned users with an actual login.

Method A: Fixing orphaned users


EXEC sp_change_users_login 'Report' -- find orphaned users
if the login exists already, you can asssociate the orphaned user with the login. Otherwise, you can create the login


-- Login exists

EXEC sp_change_users_login 'Auto_Fix', 'user' 


-- Login doesn't exist

EXEC sp_change_users_login 'Auto_Fix', 'user', 'login', 'password'


Method B: sp_help_revlogin

You also have an alternative called sp_help_revlogin which can help you to restore not only the login but the original password that went with it.

http://support.microsoft.com/kb/246133/en-us

It essentially entails creating a stored procedure on your old server to generate a script that will output all of your existing logins.  You then copy the output of that stored procedure to your new server and restore the logins that are associated with the database you restored.