1) apt get update
2) apt-get upgrade
3) apt-get dist-upgrade
The procedure seems about right. When you're doing an upgrade from "stable" to "testing" you do (as root) "nano /etc/apt/sources.list" and change every "stable" entry into "testing".
# apt-get update
# apt-get dist-upgrade
In my experience, this works very well if you're got just the basic system installed. It may also work if you've got more stuff (such as KDE) installed, but I haven't got any experience on this. I've personally always made the upgrade (into Sid/unstable) with just the base system installed, and I only use WindowMaker, so I have no competence on giving people advices on dealing with the problems Debian possibly has with KDE. However, my experience shows that Debian does very well in upgrading the base system with "apt-get dist-upgrade".
My (inexperienced) opinion would be that you should first make just a basic installation, then upgrade the system, and then install KDE after you've already got the base system upgraded. This has worked well for me with WindowMaker and I'd expect the same procedure will work also with KDE.
By The Way, if you're using Sid/unstable, you should be prepared that things sometimes get broken. The good way to deal with this is that you need to have a stable light-weight window manager (such as fluxbox, windowmaker, or xfce4) installed. Then you can change into your "spare" X GUI and wait for a couple of days for your main DE (KDE or Gnome) to be fixed. If there are bugs (and there usually are) in the big DE's, the good Debian developers will work their butts out to resolve the problems as soon as possible. So I suggest that you have a "spare" WM, and you wait a bit and most likely you'll be able to boot into your fully working main DE very soon. Sometimes it takes two WEEKS instead of two days, but things usually get fixed pretty fast in Debian.
You can speed up the procedure by filing a bug report every time you meet an application that doesn't work as expected. In my experience, the Debian package maintainers are VERY much motivated to fix any real bugs.
Ps. Here's the adress to record bugs in Debian:
It'll probably be difficult for the first time, but it'll get easier when you'll file new bug reports using the same interface continually. Please, try it if you think you've met a bug.