Upgraded my 60GB to a 320GB on Friday night - remarkably painless process (albeit lengthly).
1. Attach external USB drive
2. Select Backup from the System menu
3. Wait 1h40m to backup my 55GB worth of DLC...
4. Turn off, blow dust out of vents, open HDD bay, unscrew locator pin, remove tray.
5. Remove 4 screws - this was somewhat tricky as you need a fairly small head and my jewelers screwdriver set has really skinny handles - ended up using some pliers to get traction on the shaft just to loosen them.
6. Substitute new drive, screw it in to the tray, reinsert into drive.
7. Boot up, format drive (possibly not necessary, the restore also performed a format, IIRC).
8. Select Restore from the System menu.
9. Wait 1h30m to restore the 55GB worth of DLC.
Everything was restored - users, system settings, save games, all my DLC content (including stuff like Warhawk), music I had copied over, etc. Didn't have to redownload anything (and the firmware is flashed onto the BIOS so it persists through any HDD changes). Apart from the lengthy waits copying off an back on, was a trivial venture.
I do agree that it did seem dangerously easy to potentially strip the heads on the locator screws holding the HDD to the tray, make sure you pick the right sized screwdriver and take care.
edit: My drive of choice was Western Digital 320GB, 5400rpm. Set me back $200 although I'm sure you could find one cheaper elsewhere. Could have gone smaller but seemed to be the best value for price/capacity.