I always do it by migrating to a new vps with the newer distro. Simple rsync + dumps or a software reinstall.
I've had way to many issues with kernels breaking (Xen / digitalocean) or other crap after an upgrade like non working software (Ubuntu) or packages that got removed from the repo's (Ubuntu). With a migration I at least still have a working setup without having to restore a backup...
How do you upgrade? (OS distro, not cms or other software on top)