When FC2 is released, will I be able to update to it with Yum? Or am I DL a bunch of ISO's again?

You might be able to.. you probably can.. but it is not supported.. so maybe not. The only really safe way to update is to get the first cd.. or the boot.iso cd, and update with anaconda (the installer program). You can do that with a net install if you like (and not need the other cds), but that is much better than just updating packages with yum. If you just update, you will have problems along the way.. and you will end up with some bad config files, some of the new packages not installed, and maybe some old packages still installed that should not be.

So anyway, its possible, just don't expect the update to be a one liner yum command.. it takes thought and attention to detail if you really want to end up with an FC2 system rather than a hacked-up newer version of FC1.

Don't upgrade it with Yum unless you know what to fix to complete the upgrade, because the Fedora Core 2 installer applies some modifications to the system which yum doesn't. E.g. modprobe configuration, kernel input layer changes in xorg config, LVM support could cause trouble, ...