to upgrade from a vdr 1.x appliance:

• unmount any CIFS shares while the vdr appliance is idle
• shutdown and delete or rename vdr 1.x appliance
• deploy vdr 2.0 appliance
• configure vdr 2.0 appliance and re-add CIFS shares
• manually perform an integrity check

there’s no method to directly upgrade a vdr 1.x appliance to a vdr 2.0 appliance. it simply must be replaced.

source:
http://www.vmware.com/support/vdr/doc/vdr_200_releasenotes.html