1) Back up everything important!
2) I would recommend updating the code stack. Depending on what version you currently have, there are several updates that could have significant impact. (You can check the release notes.)
3) If you have anything "unusual" (add in cards mainly) I recommend installing to a new HDD and keeping the current as a back-up in case something goes wrong. ( ok, I admit it I am the worlds biggest pessimist.) In the Supported OS list http://www.intel.com/support/motherboards/server/s5000vsa/sb/CS-022698.htm You see that R2008R2 was an Install only testing (minimum validation level), though the older W2008 went through full stress testing which includes adaptors.
I doubt you will have any issues, but for a production server, safe is better than sorry.
No, you don't have to upgrade your firmware/BIOS.
Just make sure prepare your Windows 2008 drivers from support site
When an new OS is added to the THOL, it is tested at the "current" BIOS code stack level so you should be at least at the same level that was advaiable when the OS was added.
Down load the package and check the ReleaseNotes_BIOS0101.txt for the details (bad as they are) of changes from your current BIOS to the most recent.
Having read the processor spec Erratum's, I would strongly recommend a BIOS update.
Regarding point #3, installing to new HD.
I have 2 new HD's purchased for that purpose.
My current config is 4 HD's.
2 - 500GB drives are RAID1, for Windows System & Data partitions
2 - 1TB drives are RAID1 for additional data.
Can I disconnect all 4 drives, connect 2 new drives and create RAID1 array, then install Windows 2008...
IF all goes well, can I then just plug back in the 2 - 1TB drives to the same connectors and will the everything be there or will the controller have forgotten about them?
I have not tried swapping raids around so will hope that someone else my have a beneficial comment for you.
I believe that when you remove all 4 drives and install 2 new one it will see the new drives as not part of the raids and the current raids as missing.
You will then add the new RAID of the new drives, the system should preserve all 3 raid configurations.
Make sure you don't delete the old missing configurations or it might have issues with you re-install the data raid.
But, this is not something I have done personally so maybe one of the guys who know RAID can comment.