I agree - if your xbox isn't hooked up to your home network, you're REALLY missing out on 90% of XBMC's potential.
My upgrade procedure is a little more involved, though. I generally use a T3CH release
1) ftp into xbox booted up into UnleashX
2) rename XBMC to XBMC.bak
3) upload new XBMC folder
4) via UnleashX file manager, copy from XBMC.bak => XBMC:
* UserData folder (overwrite new)
* skins (other than freshly updated PM3)
* scripts (other than the 3 included)
* Apple Movie Trailers data folder (this doesn't always work, but saves a buttload of time when it does)
That's pretty much it. The only time to not copy your UserData folder is if you're having major problems - it holds all your thumbnails, movie info, sources, keymappings, settings, etc. Before all the settings moved into the userdata folder, I used to go thru and edit the fresh xboxmediacenter.xml with every single update - man am I glad I don't have to do that anymore.