Site Template Galleries and List Template Galleries are not upgraded during a migration.
This is true of WSS 2.0 to 3.0, and therefore SPS 2003 to MOSS 2007.
The reason is that they're not sites or lists, they're simply files stored in special Document Libraries named Site Template Gallery and List Template Gallery, one per Site collection.
So how do you upgrade these templates to WSS 3.0 or MOSS 2007?
1. Create a blank site called SiteTemplates in the old environment and create sites based on all your templates beneath it.
2. Create a site beneath it called ListTemplates and there create instances of, well, I’ll bet you can guess.
3. Upgrade the server, SiteTemplates will be migrated too.
4. If they come out fine, use Save As Template in the new environment to save each back to the Gallery.
5. After you’re done, either keep or remove the SiteTemplates site depending on how useful you find it.
It’s the same strategy I use to develop site templates with people. I create a /Sandbox or /Dev site collection, rough out a site below it, and then give the future site owner rights to contribute according to their skill level. After the design is approved I can build a Site Definition based on it or Save as Template and upload it into the Gallery of their actual site. When they need to make changes, for example to change the format of the Project Charter doc stored in a Project Site, they can make the changes themselves and let me know that a new Template needs to be deployed. If they understand that after initial stabilization deployment happens once per month, it works itself into a nice routine.
And if you grab VSeWSS, there's a fighting chance that some of these upgraded Site Templates can be turned into bona fide Site Definitions with the SharePoint Solution Generator. Only Site Definitions are now called Site Templates too, so while you're ahead semantically, you're running in place syntactically. C'est la SharePoint vie.