Are you trying to upgrade from 2003 32-bit to 2008 R2? Since R2 is 64-bit only, and cross-architecture upgrades are not supported (or possible), then if your 2003 is 32-bit, you cannot Upgrade; you would have to do a clean install.
Also, if upgrading to 2008 R2 Standard, you must have 2003 Standard; you cannot "upgrade" (downgrade) to a lower edition (Enterprise or Datacenter to Standard, Datacenter to Enterprise). You also cannot upgrade the "Web" edition.
On the screen that shows the partitions to install to and it doesn't find a drive, click on the "Load Driver" link in the bottom left corner.
Yes it is now running Win2k3 STD 32 bit. If I install from the Win2k8R2 DVD, I presume it reformats the C: partition after I get the driver loaded and after reinstallation, it will only run the R2 64bit version.....and it wont mess with the other 2 partitions that both contain 32 bit data?
No, as long as you select the correct partition during installation, it will install to it and leave the others alone. I would delete your C: partition before installing though, letting 2008 R2 install to the Unpartitioned Space created by deleting it.