WebServices with IIS or SQL?

I recommend reading the following technical article on MSDN
http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnsql90/html/sql2005websvc.asp
that discusses usage scenarios for SQL 2005 native web service.

There is also a section in SQL 2005 Books Online that compares the differences between using SQLXml and Native Web Service. You can find the section in Books Online from the Index under "Native XML Web Services" -> "vs. SQLXML"