Do you want the short version? – If you are not a geek, do not upgrade to WordPress 2.1. YET! Stay with the stable 2.0.7.
The 2.0.x branch will be supported till 2010, as you can read about it in the devblog of WP; see the Future section of the post. Which means you will be safe and supported with your 2.0.x WordPress blog until the new branch get ironed out.
Based on what I see in the WP Forums version 2.1 seems to have a quite a number of problems, especially with its Links and Pages. Actually, I am not the only Forum regular advising patience: see whooami‘s post in this thread and also Otto42 answering this.
Make no mistake: WP 2.1. is a great piece and has a lot of interesting features. But as I said in my post yesterday about the Pages the new database structure can break your blog. It seems the most radical changes have been made how the Links, Categories and Pages are handled.
Earlier posts had their own categories set while links (Blogroll in default install) also could have their own categories. The coders say there were two very similar database tables, so now in WP 2.1 the two category sets are mixed in one: therefore the link categories and posts categories are handled in the same way in the same place in admin.
As a result, some of the template tags for categories are deprecated while new ones were introduced for 2.1. The same goes for the links manager tags.
Altogether, it is a good idea to check out that Template Tags page in the Codex — hopefully it will get updated more and more — and see if your blog uses any of the deprecated tags.
The other main issue is the compatibility of plugins with the new WP 2.1 version. Again, you can check the compatibility list in the Codex but many times the plugins (as any other code) might act strangely on different server environments. Some plugin authors are working right now to update their plugins, others might be not supported anymore.
Since the arrival of more “sophisticated” themes that have their own fancy options page in the admin interface and come with their own functions.php file – the chances to get a blog messed up by a upgrade are very high! Mainly because in those functions and “user-friendly” gizmos provided by the developers and designers the code relies on the pre-2.1 database structure and queries. Quite often even the main template files (index.php, archive.php, single.php, page.php) have some customized Loop in certain themes, and those are very likely to go broken after the upgrade.
Summary: if you are not in a desperate need to use any of the new features of WordPress 2.1 – you better wait patiently until things settle down a little bit. I am sure both plugins and themes will be updated soon for 2.1, and after that you’ll have a smooth ride with the upgrade.