And make sure you have enough space. Did the APT cache location get moved to eMMC at some point? I know in PR1.0 and 1.1 it was on the 256MB partition, so would fill up if you tried to do a dist-upgrade.

I don't know if it changed in a newer PR because I moved mine to do the upgrade to 1.1. Even without doing that it's possible to do the upgrade in stages so long as your phone keeps running and you don't accidentally close the terminal you're working in. Takes a lot of typing, though, since you have to 'apt-get install' 20 packages or so, do 'apt-get clean' and then install another set until you've got 'em all installed.

If the update fails, you might have to reflash the phone, but that's the worst likely outcome. (it might be possible to kill the phone entirely if it craps out at the absolute most inopportune time possible, but the that window is very short, and even then a failed kernel flash shouldn't permanently brick the phone)