It DOES work. Since I got my N900 in Nov 2009, I've done all upgrades OTA with absolutely NO problems. Nothing has been lost or changed in the process, everything stayed perfectly intact as before (except Titan's kernel-power, of course). No doubt 95% or more - who knows, maybe 99.9% - of N900 users have done the same. My device has never been flashed and runs great, stable and fast. I doubt I'll ever need to reflash the OS as long as I use it.

Now, if you've had problems with updating due to package conflicts or general software breakage, it's almost certainly because of something you did. Maybe it was software installed from the devel or even possibly the testing repositories. That's alpha and beta software. Maybe you did some other modifications also. It's not Nokia's fault or Maemo's fault or even the developer's fault if you can't deal with the risks involved doing this stuff. It's your fault for installing it.