Despite the name, it's not really an upgrade, but a very different type of device, specialized for streaming video. It will not do many of the things the original appleTV did, such as allow you to buy and locally store movies, and it is also more picky about the kind of components it will hook up to (it has only digital audio outputs, and requires a TV with 720p capability and a HDMI input.
The hard drive on my old one was not big enough to store my content, even tho it's the largest available. So I had been streaming only with it. For streaming only the new Apple TV is better organized in my opinion. Now I mostly live in the Internet tab instead of having to bounce through different tabs to get to the different internet sources.
You have to look at them as different products with different purposes. If you fully used all the features of ATV1, then you would miss some things. If you only used the streaming functions of ATV1, then ATV2 is a very positive upgrade.
I have both. Had the ATV1 for a couple of years. I liked the ATV1 except for lacking Netflix and the VERY slow interface speed.
ATV2 is very quick, small, silent, and runs cool.
Having both an ATV1 and ATV2, I must admit that I am disappointed that the ATV2 cannot access the library on the ATV1, nor can the ATV1 stream to the ATV2 as an AirPlay Speaker. Seems like an oversight.
So the only way to play your iTunes library or photos over ATV2 is you MUST have a Mac/PC turned on at all times. When I pack up my Laptop and head to the office, my house, spouse and kids have no access to our family music library. Unless I hook up the ATV1 to the same main stereo system as the ATV2. Need both. ;-(