Today I wanted to try out the new Android 2.0 SDK update that was released last month. Aside from the new cool things I wanted to try out in the new release, I also wanted to see if things were different in the new API.
After downloading the new SDK, which was suprisingly only 22MB instead of the 224MB for 1.6, I found out this was an unnecessary step. It seems you can update 1.6 by simply go to Windows > Android SDK and AVD manager > Available Packages. Check the checkbox with the repository xml, click Install Selected and follow the screens from there. Afterwards you need to update "Android Development Tools" as well in your Eclipse software updates.
Unfortunately, the update didn't went as smooth as I hoped for. After updating I ran into the problem in comment 1 stated here http://code.google.com/p/android/issues/detail?id=3025. The emulator would start, but eclipse couldn't connect. ADB kill-server didn't work.
In the end, I got it running again. So, what was I doing wrong? It appears you need to update "Android DDMS" as well in your Eclipse software updates.