Upgrading Ubuntu 10.04 LTS Server Image

Shut down your Linode and clone it to another Linode.

Leave the original Linode alone for the time being.

Try to upgrade the clone. Use the Lish console, not regular SSH. (You can, however, connect to Lish using SSH. This is much better than the laggy web-based console.)

If the upgrade works, point your old IP address at the clone and delete your original Linode. If something goes wrong, nuke the clone and try again.

If you absolutely must upgrade, then I'd say that hybinet's suggestion is the way to go.

Personally, I never do distro upgrades because so many things can go wrong (even when you don't get an error). I manually do a fresh install. This also helps me learn my system better and provides an opportunity to change anything that needs changing.