Shader Model 3.0 - No limits
Microsoft DirectX 9.0 introduced several new standards for advanced vertex and pixel shader technology, version 2.0 and version 3.0. Shader Model 2.0 hardware has been available for over a year, and both hardware and software support is growing rapidly. Shader Model 2.0 includes technologies useful for advanced lighting and animation techniques, but has limited shader program length, and complexity, which limits the fidelity of the effects that can be achieved.
As developers push against the limits inherent in Pixel Shader 2.0 and Vertex Shader 2.0, they have started to adopt the newer, more advanced Shader Model 3.0. This shader model has advances in several areas, in both pixel and vertex shader processing.
The following is a feature summary outlining the key differentiators between Pixel Shader 2.0 and 3.0.
Source: Microsoft
