In case you have installed the .NET 3.5 SP1 and Visual Studio 2008 SP1 and are unable to find the Dynamic Data Website Template, you can install the latest version of the runtime from here
If you are unable to find the "Dynamic Data Website" Template than instead of fixing the issue by installing/uninstalling SP1 Bits again, it is better to install the latest bits of the Dynamic Data Runtime from CodePlex. this will install the template and the other advantage is that, you will also get the "Dynamic Data Website Wizard (Preview)" that allows you to configure a data driven website very quickly, by following the wizard steps.
Happy Coding :-)