Not my "area" of expertise but the sites  link in 2003 took you to an
Area in the root site collection called SiteDirectory. I would suspect
that the migrated solution is attempting to find a WSS v3 "site" at the
SiteDirectory URL and for some reason it isn't found. All the actual
site collections under the "sites" managed path are all still intact and
unaffected by the missing MOSS site that would catalog them. I would
attempt to create a new Site Directory site with a SiteDirectory URL or
modify the Top Nav link to point to the new MOSS site that represents
the Site Directory functionality.

The MOSS Site Directory (Other than the enhanced functionality) is just like
the SPS 2003 Site directory in the sense that it is just another "List" that
contains URLs to the sites, and therefore you're not getting a problem
because of the sites, just like Todd states.

was it possible that your SPS2003 Site Directory was using a custom area  template? Or there were changes to it
that may have prevented the Site Directory area from upgrading properly to
it's MOSS "Sites" site definition/template equivalent?

When I create a new site directory "Sites" and add the url as \\server\sites I
get the page 404 error again and also i changed the url to \\server\site0 again
it was pointing to a completely different site directory

How do I change the Top Nav Link ,That is connected to the sitemap provider
right !

If I'm reading you correctly, you're creating a new "Sites" tab onto the tab
group and setting the URL to \\server\sites <file:///\\server\sites> ?

That's not the way to do it.

You want to go to your portal, create a new site, and base it on the "Sites
Directory" template (Located under the "Enterprise" tab in the template
selection.

This in itself, is not going to populate your new site directory though,
with the sites  you have available.

But this leads me to think about your problem differently too.

If you go to the root of your portal,

Select "Site Settings" from the "Site Actions" button,

Select "Modify All Settings"

Select "Site directory settings" under "Site Collection Administration"

What is the value of the "Site Directory Path" field?

Is it "/SiteDirectory" or something else?

Site Directory Settings is empty actually

regarding your intial question
and I did create a new site "site" based on Create Site / Site Directory
template
and when I renamed the url to site0 (keeping the title "sites") I can see a
new site directory
and when the url is "site" then i keep getting a 404 error

"It's all quite clear to me now Dave" (Sorry, humorous reference to 2001 a
space odyssey)

Ok, by default (From what I'm seeing),

If the "Site Directory Path" field is empty as you note, that's the reason
for the 404. Don't know how it "Got" empty.

Otherwise, by default it should be "/SiteDirectory" to refer to the relative
path of the site directory site. (Actually by default it's a subweb of your
collaboration portal, but let's not go there yet)

So when I create a new site based on the Site Directory template, I called
it http://server/MyNewSiteDirectory. So if I wanted to point my "Site
Directory" to this site, I would update the "Site Directory Path" to
"/MyNewSiteDirectory"

Something tells me that you don't have a site called http://server/site and
thus the reason why it fails when you put in "/site" there.

When you put in "/site0" it worked because there is actually a site at that
URL path, i.e. http://server/site0.

Am I reading you correctly? Or am I making this a lot worse than it is.

Ok I tried adding "/sites" to the site directory settings as that is what is
being ported
But still no success
Even when i create a sites  directory "sites" it comes up with the 404 error
It does not happen when I create a sites directory "site0" or "site2".

Forgot to mention this,
When we did the migration the "site" site directory site was actually migrated
as "site0" and it was working at that point , only when we attempted to change
the name from "site0" to "site" it was broken and we are not able to revert back
to "site0" also.

Three things:

1. You already have \\server\sites as a managed path, so that virtual
URL is already in use.

2. The URL used in SPS 2003 was \\server\SiteDirectory so that is the
most likely location the top nav is attempting to find.

3. You can manage the top nav from the Top link bar link under the Look
and Feel section of the Site Settings page.