While you should always be updating your WordPress installation, there are times (like now) that it is absolutely critical that you update your site, because it corrects a security issue. WordPress 3.0.4 is a security update. You can read the official article here. It took me literally seconds to update my 5 sites I have (and I filmed one of them below).
FOR MY HOSTING CLIENTS:
In regard to backing up your installation first: if you are hosted with me, backups occur every day between approximately 1 am & 4 am (it varies). If you upgrade your installation and something goes wrong, I can restore it from last night's at no cost–contact me asap (READ: before the next daily backup!).
You can also make a back up your entire site yourself at any time, CLICK HERE for a short video on how to use the backup option in your cPanel. Of course I would have to restore the site for you anyway, but if you are doing big changes to your site, you may wish to keep a copy from a particular date. Remember to download and delete that backup from the server though!