actually there is another question, which i read in the documentation that if i have PDM installed and try to upgrade to 7 with 64MB then it would not be possible and also the procedure of upgrade should be through monitor mode instead of network.
Sorry not sure on that one. I wont install the PDM unless its absolutley necessary as it provides an additional service that the firewall is doing (increases its attack footprint by adding more services).
The update is quite simple, i am sure there is a Cisco paper on this somewhere (if you need it then let me know and i will find it).
I updated our firewalls from version 6.3 to 7 and it was a simple process. Luckily, i had enough space to copy the new version 7 code over and maintain the old version 6.3 so i could easily roll things back if it wasn't happy.
I would suggestion making a backup copy of your config, the upgrade to version 7 will convert the config for you and it should create a backup of the original. I would still make your own backup of the config file. Also, i would check through the upgrade notes because some of the version 6.3 commands have changed (fixup is gone), most of them will be automatically converted to the new syntax but i cannot remember if there was a few others that it didn't do so i would strongly recommend reading the notes.