It will be much better if you put sql on another box, assuming your IIS is ASP accessing sql server. I had the two running on the same box, the performance dropped to 25% if you put them into separate boxes.
Having spent the last 6 or 7 years supporting SQL server commercially, I'd suggest keeping it on a seperate box. If you have no alternative, then set SQL with a fixed memory size to reduce swapping.
By default SQL 2K will start with a small memory allocation and then it will grow as needed until it maxes out all your available ram It will release memory when the OS needs it, but you don't really want that overhead on a production box.
Open the properties on the SQL server and select the "Memory" tab to set this. Howver if you need me to tell you this, I'd suggest getting an MCDBA on your staff