Re: Upgrade confusion.
I downloaded the zip file in March 2009. It’s 1.0 by the look of it.
Actually, you are using a pre-release version of 1.0. In fact, you are using the first release candidate (RC1). Before version 1.0 was officially released, there was even an RC2. So, you are five versions behind. There have been significant changes in the BP codebase since then.
As DJPaul states, do a backup of your Database (DB). Your MySQL DB files are stored in a different place than where you have WPMU and BuddyPress installed.
Also as Paul states, you will need to switch from /mu-plugins/ to /plugins. This is not an option.
Here are some detailed instructions. I would read these just so you know how things have changed since RC1.