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Yes it is possible - I did it on our internal Intranet site (no external connection) but it took me several weeks to get there (I was learning from scratch though!).
W2003 Server is VERY permissions orientated though, more so than any other MS OS, and you will hardly ever, ever get XOOPS to work first time without missing something. It can be done, it has been done, but you need to have patience and perserverance.
Also, be careful about installing any other SQL applications on your server, for example, Veritas Backup that require MS SQL Server.
If you come up with problems, click on my account and read all the posts I've made that have '2003' in the subject because many of my problems I got sorted here in the XOOPS community. In addition to that,
http://www.iis-resources.com are invaluable and very knowledgeable.
Good luck!
Ted