1. you can just overwrite the old files with the new. however, you'll have to shut down the litestep shell, otherwise the files are being used and you won't be able to copy over them.
2. there's a few changes, I'm sure, but I have no idea what they are. easiest thing probably, copy your themes folder to another location (out of the litestep folder completely), remove litestep, then re-install into c:. oh, then copy your themes back into c:\litestep\.
that should be about it... oh, if you've customized anything else (popup, additional modules, etc), copy those out also before removing.