Well, I'm just reiterating what others have said, but I'll interject my own experience just for kicks...
I originally had 10.0.4 and 9.2.1 on separate partitions. I got the 10.1 update-only CD from the Apple store here in Plano (they've got TONS of copies!) and went immediately home and "updated" my copy of 10.0.4. Smooth as can be. Well, I started reading some of these forums about speed not being all it can be with upgrading vs. clean installing, so I decided to test the "Reformat and install" option on my 10.0.4 partition -- I did it, and it worked! However, one small anomaly I saw was that the installer never reformatted the drive, unless it was lightning quick or something...
Booted into my freshly-installed 10.1 and it worked fine... don't know if it really had any impact on speed vs. installing OVER a 10.0.4 installation, but I'm happy. One thing I DID notice, however, is, after re-loading all the software I previously had installed on 10.0.4, I had about a gigabyte of extra space on the drive vs. what I had when I installed 10.1 over 10.0.4! Bonus! Hehe...
Good luck with everything, and remember: 10.1 rocks the casbah!