You'll be fine...Transfer purchases,sync and backup device,update to iOS 5 as new ...sync again.
Try to backup your device before updating iTunes
I like to triple backup my contacts as that's the one thing I don't want to fix manually ...google sync and an app called contacts tool is what I use. This apps let's me email the contacts in text and LDIF to myself and if needed can be transferred to dropbox, to get it back on the phone.
It's a bit redundant more useful for my 3 phones to keep the contacts from getting mixed up with each other.
Sent from my iPhone 10S-teve
"Here's to the Crazy Ones"