In the upgrade documentation is says not to upload the styles directory. How do you overwrite the existing default ubbthreads_1.css to incorporate the new styles? Do you have to go through it manually and add them in the CP styles editor?

Well heres where it's odd... Styles are actually stored in the database, and when they're edited (and you click update) a flat file is generated in the styles/ directory.

So during an upgrade, the styles directory is like your cache directory, it holds your temporary files; thres really no need to overwrite it because all of the files in it are just temporary files (well, with the exception of the images subdirectory).