I've been using Live Upgrade on my Solaris servers recently. Normally I would prefer a fresh install, as that gives you more of an opportunity to fix up any mistakes you made, but sometimes you need to preserve the application data or can't afford the downtime.

One word of warning, though: if you're starting with Solaris 8, you can go to Solaris 10 8/07 (update 4), but not to Solaris 10 5/08 (update 5). Even when upgrading from Solaris 9 or 10 you'll need the 7zip patches, but those don't exist (yet, anyway) for Solaris 8.