Just a quick update from the original poster:

Thanks for both replies. I've followed all of the suggestions so far.

For anyone else that follows those instructions, I'd recommend moving your movie and music files to a computer before trying the archive command above. It appears that all of my MP3s and MPEGs are currently being archived as a result. It's been running for an hour so far and I'm getting worried what will happen if/when it runs out of internal storage to compress to...

Still, when it finishes, I'll be sure to run that same command again without my media files being involved. It brings great peace of mind to have this backup done before proceeding with the upgrade to 1.2.

Also, after disabling the other repositories, I only have 38MB free on rootfs. It doesn't seem you feel it's necessary for me to do a full reformat before flashing the upgrade. So, if that's not enough free space, I'll uninstall all the stuff I don't use anyway and hope that creates enough room.