The update to iOS 4 will work just like very prior update. It will show up in iTunes as an available update when you sync your phone. You download and install just like any other update.
There will be a large number of early adopters who will jump on it as soon as it's available. The majority of all users will update when they are notified by iTunes it's available, tied to a sync, and this will be over several weeks.
It is likely that 30% or more will never update.... or will not update until they are forced to in order to run a specific app or get a specific feature.
We still see a large number of registrations running iOS 3.n
I would not bet on iOS 5 being available before the iPhone 5 ships however. There is no reason that has to happen. It should be available around the same tome, and it's doubtful the iPhone 5 would ship without it, but bit would not have to be available to the rest of us until later...
-t