You won't need to go back to an older version before you upgrade.. you can just install.
Unfortunately, there have been significant changes from 0.5 to 1.0. It's a significantly different core/framework. You will need to clear data/cache when you install, or you will boot loop your phone. So be prepared to reinstall your apps, and reconfigure your phone.
(The apps should start re-installing when you open the market for the first time. So I always recommend turning on WiFi after the install, BEFORE you open the market app for the first time... It will probably look like apps are stalled in Market, but they're all queue'd for download, and will eventually all be installed. I also recommend syncing with AppBrain to make sure you get all your apps back. If for some reason some of them don't reinstall.. it's just a matter of reinstalling appbrain app, and syncing to get them back.
HTH!