Migrating to vSphere 4 from VI3 is a very easy process. There are a, however, couple of gotchas you need to look out for.
But first, are there many good reasons to upgrade from VI3? There are some nifty feature additions in the background: Virtual IDE controllers and USB may be a good reason to upgrade. And of course there is better 64 bit support. Add to that a greater range of settings and a sparkling new interface for vCenter, making administration a little easier. Permissions are scaled out to all objects. And, of course, there is the vNetwork Switch (an expensive step up to Enterprise Plus.) This makes your networking datacentre based, as opposed to machine based, which means your switch ports migrate with your VM, reducing packet loss and maintaining connection integrity.
And now the Gotchas:
vCenter Update Manager now works differently. No longer are the Hosts defences switched off in order to scan or run updates. Instead, the hosts communication with vCenter over port 80 to collect update definitions. vCenter proxies this to the Update Manager, running on whatever you set it to on installation. Of course, if you have a proxy server set on the server, you need to make sure that the local IP address of the Update Manager is excluded, or you could be spending the day trying to figure out why updates do not work...
Setup of the client tools is the shakiest yet. For a start, the new version of the tools requires a complete uninstal of the older version. This in itself is not a bad thing, unless the previous version cannot uninstall itself without leaving parts of itself all over your server. Look up VMware KB Article 1001354 (http://kb.vmware.com/kb/1001354) you will get very familier with it. After attempting an uninstall and falls over in spectular failure, run through the KB article, removing all the remenants of the previous installation. Then run setup64.exe to install the latest tools. A reboot is required. It's possible that trying to uninstall 32bit tools and then install the new 64bit tools. Hopefully the next upgrade will not be so painfull.
Finally, after completing the upgrade, put each of the hosts into maintenance mode and watch for VMs that refuse to migrate. One of the reasons for failure to migrate is hardware. vSphere 4 introduces more hardware virtualisation, such as USB ports. If you previously P2V'd a physical machine or a VMware Server VM, with VI3.5 it ignored the USB ports. vSphere 4 recognises the USB but does not quite integrate the original settings and therefore cannot migrate the VM. For these VMs, a simple edit of virtual hardware will resolve these problems. But you want to find these out sooner rather than later.