Yep, it's a series 2. As far as everyone knows, all of the series 2 boxes will be getting the new software update. It's still a little unclear whether some of the speed improvements are due to the faster CPU in the new R10 DTivos or because of the new software (or both).
As far as the HD upgrade is concerened, if all you are going to do is upgrade/replace the drive it won't make any difference if you do it now or later. You will still get the new software loaded on the new drive if you replace it now. I would recommend replacing the drive now because it is quickest to copy only the software and not all your programs in the upgrade process. If you wait, you will have much more that you will want to copy.
Remember to keep your old drive in a safe place just in case you ever need to use it again.
A 120 GB harddrive is too small for LBA48 support to matter. (The 6.1 software on the R10 has LBA48 support; for drives bigger than 137 GB, the 3.1 software on your DVR40 doesn't)
If you were going to use a 160 GB drive then waiting to see if your TiVo upgraded to 6.1 w/ LBA48 support would let you use the whole disk, rather than only the first 137 GB; but as you planning to use a 120 this is irrelevant.