1) Can we restore sql server 2005 red gate backup on sql server 2008 R2 release ?
Yes you can. However, the database cannot be placed in read-only mode, as that requires the database to be upgraded which causes future transaction logs to be non-restorable. The database can only be placed in non-recovery mode.
log shipping via FTP
It can be set up that way, but you would need to set up a FTP task on your own to download the files from the FTP site to a folder that's accessible by your secondary server. SQL Backup cannot retrieve files from FTP sites on its own.
The command to restore transaction logs would look like something like this:
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EXEC master..sqlbackup '-sql "RESTORE LOG [mydb] FROM DISK = [g:\\backups\\LOG_mydb_*.sqb] WITH NORECOVERY, MOVETO = [g:\\backups\\processed\\]"'
SQL Backup would then attempt to restore every file it finds matching the g:\\backups\\LOG_mydb_*.sqb pattern, ordered by the backup finish date, and move every successfully restored file to the g:\\backups\\processed\\ folder.
It would be ideal if the FTP task can download files ordered by creation date, but SQL Backup can deal with out-of-order files fine, except that you'll be receiving a lot of warnings that way.
You do not have to worry about SQL Backup attempting to restore files that are being downloaded, as it ignores files where it cannot obtain an exclusive lock.