I'm about to upgrade my N2 from the 2005 software to the 2007. I assume this is possible (without the 2006 step) and that I will not lose settings.

My second question is if the interface has been improved at all. The XM and CD interfaces are like an afterthought in the 2005 version. It looks like no thought went into functionality and how to exploit all the screen real estate that's available. Inexcusable for a $2200 product in my opinion.

No changes are made in the interface, that would require a hardware change (The N3 and N4 are improved) You may lose your presets or eq settings, but nothing important is lost during the update