Upgrading a Microsoft OS has never really worked well, always format and reinstall, it'll be less headache and less time wasted in the long run (doubly so if you partition your hard drive and keep your data on the other partition)
The biggest problems I'm having is that NX client, which I use to access my Linux terminal server, doesn't work well with Vista 64, I get two "this program has stopped responding" type errors as it connects to my Linux box but then it connects anyway and like I already mentioned it doesn't understand the new "Border Padding" window metric so positions the windows slightly too high and too far to the left until I turned off the padding.
Half Life 2 and Half Life 2: Lost Coast don't work in 64bit mode, they hang on the loading screen, very annoying. The workaround is to use the 32bit versions.
Crysis looks a lot nicer and I can run higher graphics settings than I could on XP. Bioshock, supposedly the poster child for DX10, looks exactly the same!
Hibernate mode works a hell of a lot better in Vista, I dunno why, my guess is that before hibernating it flushes it's cache and then only stores to disk the bits of memory currently in use, wheras XP would dump the entirety of your system memory to disk.
In theory the hardware accelerated GUI should improve responsiveness a bit, there's no longer any need to request that an application redraw itself once you minimise a window that was hiding it.
UAC is annoying so you turn it off, but when it's your mothers machine and your sick of the monthly visits to clean off spyware then you leave UAC on

All in all, if you're comfortable with using XP and don't need DirectX 10 for games there probably isn't much that's going to sell you on Vista. If you're new to computers or found XP too difficult to use then Vista is probably worth a look. Also if it came with your PC you may as well use it.