Proper backup procedure for upgrading to iOS 5? I keep telling my Dad to upgrade his iPod touch from iOS 4 to iOS 5, and his response is "but I'll lose all my data". Can I be confident that simply backing up by right clicking in iTunes and clicking "backup" from the menu will backup the iPod exactly as it is, so that it can be restored with the only difference being the new OS? I seem to remember reading that iOS devices keep two partitions, one for data and one for the OS, so in theory this should be good to go. I'm just not sure if there's anything obvious that I'm missing. 

Does backing up in iTunes preserve absolutely everything from photos to contacts to home screen layout? If not, is there a way to back it up manually?
Well, your backups store all of your data, excluding media and apps.  But, if you have been syncing with iTunes, all of your media should be already there.  And, the upgrade process does not wipe data so you should be good to go.