I have upgraded Debian from Sarge to Etch on various systems and did not run into any problems. Well done, Debian guys!
The following tutorial is based on Tim Bormann’s tutorial. I give you a quick-and-dirty insight how I have done it.
Before you start, make sure you got plenty of time (an upgrade may take anything between 30 minutes and 3 hrs) and backup at least your system configuration:

dpkg --get-selections "*" > pkglst.txt
 
# to restore:
# dpkg --set-selections > pkglst.txt
# apt-get -f install   OR   apt-get dselect-upgrade
 
# create backup of /etc
tar cfj etc.tar.bz2 /etc

Under Debian Sarge, make sure everything is up-to-date:

$ apt-get dist-upgrade

Now, change your source list by editing /etc/apt/sources.list, replace all ‘sarge’ occurrences with ‘etch’ (don’t use ‘testing’ !). For Switzerland you might use the Switch mirror:

deb http://mirror.switch.ch/ftp/mirror/debian/ etch main non-free contrib
deb-src http://mirror.switch.ch/ftp/mirror/debian/ etch main non-free contrib
deb http://security.debian.org/ etch/updates main contrib non-free
deb-src http://security.debian.org/ etch/updates main contrib non-free

Let’s start upgrading. I definitely recommend the following order:

$ apt-get update
$ apt-get install initrd-tools
$ apt-get install apt
$ apt-get update
$ apt-get dist-upgrade

This might take a long time. Make sure you answer all the questions and replace all configuration files with the maintainer ones prior to reviewing them and merging your changes.
At the end, do some cleanup by running ‘dselect’ and removing all obsolete packages. Also you should now install the new kernel images and reboot when everything looks fine.