If you need to modify something like a LayOut template, copy the file and make a differently named version with your modifications so they can be preserved separate from what we've provided.
However, you should never (99.999% of the time) need to overwrite any of the files we provide for you with your own modifications anyway. This does highlight the point that if you've made any modifications to files we provide, those modifications could be lost in an upgrade. the new installation, without removing extraneous files or replacing directories wholesale. The Windows Installer technology is supposed to be smart enough to replace just the files that differ in your current installation vs. However, on Windows, for SketchUp 7 and 8, which were built as MSI-based installers using Wix, if you're just installing a minor release (anything where the major version number stays the same, like 7.0 -> 7.1 or 8.0 -> 8.0 maintenance release 1), you should be perfectly safe to run the upgrade in-place. I have only been on the SU team for just over three years, so I can't speak to what technologies were in place back in the 4 and 5 days. My colleague, Steve, and I were responsible for creating the SketchUp installers for Mac and Windows.
So, next upgrade I will save a copy of these three directory in another directory, and try your method to install over. I believe when I upgraded from 4 to 5 I lost all my plugins, materials and components.
