SharePoint installation guidance specifies that SQL Server collation should be set to Latin1_General_CI_AS_KS_WS (case-insensitive, accent-sensitive, Kana-sensitive, and width-sensitive). However, our internal hosting group uses the default SQL Server 2005 collation SQL_Latin1_General_CP1_CI_AS. What are the potential issues we might face with MOSS 2007?
The server collation must be configured for case-insensitive, which is ok in your case.
If you use SharePoint itself to create its different databases, it will set the required collation automatically. However, if you use precreated databases - make sure you to change the collation manually. Otherwise, SharePoint won't even let you use those databases.