Per Its Time vSphere 5 Upgrade, time to upgrade VMware Tools and Virtual Hardware. I'm happy to report that both of these steps completed w/o issue. After the previous 4.1 upgrade, the VMware Tools upgrade corrupted one of my Windows 2000 VMs. VMware claimed it was a Microsoft problem, Microsoft claimed it was a VMware problem. Love the finger-pointing guys! Anyway, I made sure this VM was upgraded (actually replaced) with a Windows 2008 R2 server and we updated the application while we were at it - a win/win in my book.
No problems this time (phew!).
The only other thing I did differently compared to my previous upgrade was upgrade the SQL and vCenter servers first. vUpdate Manager will skip these VMs anyway.