cydonia,
With your Windows 2003 DNS server, make sure that you point the Gateway IP address to the SME Server. As long as you have the correct Root Hints within the Windows 2003 DNS Server any request that the Windows 2003 server cannot resolve will be passed through the SME Server to the Web. You will also probably have to add a 'A' and 'PTR' record in your Windows DNS to point to the SME Server, and any 'CNAME' records as well (eg. www, ftp, etc). Also as mbachmann stated, make sure that your Windows DNS Server box points back to itself for the primary DNS Server. Also, your networked PC's will need the primary DNS Server as the Windows box or you may run into some problems with Domain Authentication and Kerebos (if you are using).
This configuration has been successful for me for the past year, with the exception of a failure with the internet facing NIC card about a month ago.
Regards,
Darin MacLachlan