This is what I had to do to upgrade a running installation of Ubuntu 7 to Ubuntu 8 on the fly.
mv /etc/apt/sources.list /etc/apt/sources.list-bak
vi /etc/apt/sources.list
Put the following lines in your sources.list file, save, and quit
#deb http://archive.ubuntulinux.org/ubuntu hardy main deb http://us.archive.ubuntu.com/ubuntu/ hardy main restricted deb-src http://us.archive.ubuntu.com/ubuntu/ hardy main restricted deb http://us.archive.ubuntu.com/ubuntu/ hardy-updates main restricted deb-src http://us.archive.ubuntu.com/ubuntu/ hardy-updates main restricted deb http://us.archive.ubuntu.com/ubuntu/ hardy universe deb-src http://us.archive.ubuntu.com/ubuntu/ hardy universe deb http://us.archive.ubuntu.com/ubuntu/ hardy-updates universe deb-src http://us.archive.ubuntu.com/ubuntu/ hardy-updates universe deb http://us.archive.ubuntu.com/ubuntu/ hardy multiverse deb-src http://us.archive.ubuntu.com/ubuntu/ hardy multiverse deb http://us.archive.ubuntu.com/ubuntu/ hardy-updates multiverse deb-src http://us.archive.ubuntu.com/ubuntu/ hardy-updates multiverse deb http://security.ubuntu.com/ubuntu hardy-security main restricted deb-src http://security.ubuntu.com/ubuntu hardy-security main restricted deb http://security.ubuntu.com/ubuntu hardy-security universe deb-src http://security.ubuntu.com/ubuntu hardy-security universe deb http://security.ubuntu.com/ubuntu hardy-security multiverse deb-src http://security.ubuntu.com/ubuntu hardy-security multiverse
Run the following,
apt-get update
apt-get dist-upgrade
Follow the prompts, and wallah! You're done!