Upgrading to iTunes for iPOD photo

The short answer is yes. When upgrading iTunes to a newer version, any old settings are preserved.

However, I should point out that there isn't a difference between iTunes for the 4G iPod and the iPod photo -- it's the same iTunes software for both.

You will have to be using at least iTunes 4.7 to support the iPod photo, but if you already have that installed, there's no reason to reinstall iTunes, as the software that ships on CD with the iPod photo is the same iTunes 4.7 that you would use with the iPod photo.