I never done a fc1 to fc3 migration, BUt i am always a fan of going though the os versions to ensure nothing is left behind. fc1 -> fc2 -> fc3
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The only hangups I personally had were with the existing redhat-config rpms causing dependency issues during 'yum upgrade'. Basically I just removed the problem rpms and let yum reinstall them later on if they were called for.
I also agree about moving step-by-step. Yes definitely.