the Short answer is this:
Back up anything from 2.0 you want to save, custom files and user data, etc.
and then do WINCE update WITH FORMAT.
You can upgrade to 3.0 from 2.0 without formatting, but you CANNOT go to 3.01 without first formatting when you do the step from 2.0 to 3.0.
The reason being is that 3.01 includes a new UnitedStates.DEM file that is 118 megabytes uncompressed that WILL NOT FIT on your flash drive if you go from 2.0 to 3.0 without formatting. Even without mods, a 2.0 to 3.0 "Copy Over" upgrade only leaves you with about 30 megs +/- of available space on "My Flash Disk".
The only way you can do it without formatting is to first delete a significant amount of maps you don't think you will need before going to 3.01. Me personally, I like to have everything stock before I start modding to rule out problems cause by missing files.