The two packages appear to not overlap in terms of the files that they install - and according to the sqlite website, sqlite3 should happily work alongside sqlite (meaning versions <3). I think the problem lies in that the centos team chose to call their package sqlite rather than sqlite3, so accidentally clashing with Dag's rpmforge package name. I think I'll be able to get away with forcing the upgrade of sqlite v3 and then I'll manually put back the sqlite 2.8.16 files so that kannel is still happy. Since it's a live system, I'll need to go practice on something else first though!
 

And the database file formats have apparently changed significantly too.  I'll be needing yum to use one system and kannel to use the older one, so symlinking the two together is frightening!