In the past I've found that if I installed packages that weren't in the main release I would sometimes run into gigantic dependency issues that I couldn't resolve without a clean reinstall.
I've never had a problem with a Debian in-place upgrade; I've got servers that have been upgraded from woody through to squeeze without a hitch. Where I've had problems with Ubuntu, it's been around the desktop, and udev/hotplug integration.
That being said, I've not given it a fair try for a few releases, so it's possible that in-place upgrades are better tested now, but I don't see the point of taking the risk. If it goes wrong, I'll end up reimaging anyway, so why waste the time?
I'm not the OP, but on my in-place upgrade to Natty today I had the nspluginwrapper installer die with a segfault. As a result, the update "failed" (only nspluginwrapper failed, really). I had to remove google-talkplugin to fix it (so really, the bug was in Google Talk, but apparently nobody at Canonical has Google Talk 64-bit installed to encounter this). So yes, seemingly-inconsequential system changes can interfere with upgrades.
Yea that too. I've heard bad things, but I've never even attempted it myself. Years of Windows has built up some serious negative reinforcement here :)
