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Am I able to develop a software for free on Microsoft SQL Server 2005/2008 Express edition databases?
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Yes, You can.
But Express version have few limitations
And you can redistribute SQL Server, but you must register for that at Microsoft.
UPDATE - SQL Server 2008 R2
Database size limit is 10GB
Wrong Answer: As far as I know, you are free to develop in any Microsoft Express Edition as long as you do not redistribute the code commercially.
EDIT: I swear I read a license a while ago which said you couldn't. They must have changed it on me, either that or I'm thinking of the license for my student edition. Sorry about that.
Another Edit: Just clarifying, my original answer was completely wrong, I got my MS licenses confused. As far as I know from reading the licenses last night, you can develop to your hearts content with Microsoft Express Edition software.
Yes, here is a relevant faq.
You are free to redistribute your applications commercially...
Yes, SQL Server Express is free to develop on, free to use, free to ship to your customers - FREE all around! :-)
In addition to MicTech's list of limitations, SQL Server Express is (at this time) 32-bit only.
As for the 4 GB limitation for the database, this is per database, so you can easily have several databases in SQL Server Express on the same machine - each up to 4 GB in size. And in SQL Server Express 2008, the data stored in the FILESTREAM filegroup (BLOBs stored on disk) is not considered for this limit.
Marc