Can SMS 2003 be installed on a member server within the same forest with three other domains
yes although if you use ad it will update the schema for the forest if you choose. (which isnt a bad thing) But you dont need to extend the schema if you dont want to..
No you dont need it installed in AD, it will work in a workgroup with sp1.
Management is just easier if you use AD and you will be able to have globally roaming clients if you extend the schema and use advanced security.
I read that for security reasons SMS should be installed on a member server so the SAM is stored locally. With three other Domains in the forest, will it be a problem for SMS to administer updates for all three domains?, two are located elsewhere and connected via T1.
Nope no problem at all,, Your configuration really depends on the amount of clients you have at each location, you could have a central site at site A and to child primary servers @ B and C you could put secondaries in or just protected ditribution points...
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