Of course, as has been said by a few people here, that this is all rubbish and avoid it like poisoned earth. If you plan to upgrade, make a backup copy of what you already have installed. If you don't like the new version, restore your backup. Period. That's what backups are for anyway. In the IT world, it's called disaster recovery. The errors that you'll encounter with the older content are things that should have been fixed in the first place. This is the next level of error checking that has been implemented. Missing thumbnails are easily repaired, and many content creators, including third-party creators, have updated their content to repair the error. In the event that something is not repaired yet, the fix takes longer to open the content in CM than it does to repair the asset. Other errors are some incorrect tags in the config. txt files. Among the more common one is Mode which requires an actual text-string value and not a number which many content creators put in there. These fixes are documented here in the forums and in the Wiki.
Now being one that has updated to SP1 already and a bit beyond, I can say that yes, like all Trainz versions thus far, this is still WIP - a work in progress. The good news is there are also some nice hidden gems and some nicely fixed things too. If you already have TS12 49xxxx version, you'll have noticed that merging doesn't work. As a route builder this is a fatal flaw that was sadly released with TS12. The SP fixes that and nicely so. There are a few other things worth mentioning too such as the ability to straighten roads and other splines now without going to the track tool, and some nice things under the hood.
Now, there is the DLC issues. If you don't upgrade you do miss out on the newer stuff being released, and yes there is the DRM which I've heard (read here) in the forums that N3V is looking to improve that current situation to allow users to modify the content locally but not upload it.
And to clear up another rumor. The program does not require that you are online all the time. This is false if you've read it. I use Trainz TS12 SP1 HF3 offline all the time. In fact I find there is better performance this way without the network connection.
John