Re: Trouble Upgrading?
The readme.txt instructions are correct. The error message is incorrect.
As I linked to in my first post, more information about upgrading can be found here. With regards to your particular issue, from that link:
If you are using the default themes: Delete the /wp-content/bp-themes/ folder. Move the /bp-default/ and /bp-sn-parent/ folders from the /wp-content/plugins/buddypress/bp-themes/ folder and put them into the folder /wp-content/themes/. Enable the BuddyPress default theme in the “Site Admin > Themes” menu. Finally, activate the BuddyPress default theme in “Appearance > Themes” for the root blog of your installation.