That's a matter of taste. For most people the best thing to do is to uninstall R (see the previous Q), install the new version, copy any installed packages to the library folder in the new installation, run
update.packages() in the new R (`Update packages...' from the Packages menu, if you prefer) and then delete anything left of the old installation. Different versions of R are quite deliberately installed in parallel folders so you can keep old versions around if you wish.
Upgrading from R 1.x.y to R 2.x.y is special as all the packages need to be reinstalled. Rather than copy them across, make a note of their names and re-install them from CRAN.