increasing size of system drive on windows 2008

That depends on your RAID controller.  First you need to understand what your controller presents to the BIOS.  Does the BIOS see a 36GB drive or a 300GB drive.  If you just replaced the drives, then most controllers will continue to present a 36GB device.

Check the manual for your controller and do whatever the controller requires to present a 300GB device to the BIOS.  After you do that  then you can just go to disk manager and resize the partition.   You can do that with disk administrator.

My Dell 2950 server has an embedded PERC 5/I - any suggestions

How did you go about exchanging the drives? How did you copy the data to the new RAID1?

I replaced first 36gb drive with 300 - waited for rebuild to complete then replaced second drive with 300

I did not see an option in raid controller to change size of virtual disk

You can't resize a RAID array that way.   You need to do a full backup, destroy and build a new RAID1, then restore.

What do you recommend for doing a backup the would not necessitate reloading Windows?

I'm a UNIX guy so I would just boot the system to a USB stick and use dd, then partition magic, but that isn't for you unless what I wrote makes perfect sense.

As this question indicates you don't have a disaster backup anyway, then I suggest investing in some commercial software.  The O/S you are running and RAID controller are factors on the price and what you can buy.  I suggest going to acronis.com and looking at their trueimage software, but call their support / presales line to make sure your O/S and controller is supported.

On it - thanks.

I've requested that this question be deleted for the following reason:

Solutions worked

Awachspress -- as you are new here, the way this works is you assign points to the expert(s) who gave you the solution(s) to your problem.  As you wrote, "solutions worked" .. then you don't delete the question.