ubuntu 10.10
I'd like to update gawk to 4.0 and would like to know how best to do so, and how to avoid any problems that may arise. I was thinking nothing depends on gawk, so I can just 'make install'.

Awk is often used to modify configuration files. You might want to use /usr/local/ as the base directory of your installation so the new command is installed to /usr/local/bin/.

But gawk is said to be optional:
"By default, `make install' will install all the files in
`/usr/local/bin', `/usr/local/lib' etc." (http://lists.gnupg.org/pipermail/gnu...il/017811.html)

gawk is optional, awk is not. awk is part of the POSIX standard and so some implementation of it must be available on your system.

I recently updated to 4.0 myself, and I did just what jschiwal said. I downloaded the source from the gnu site, let it install to /usr/local/bin, and made sure my PATH points to that location before /usr/bin. I left my package manager's installed version alone, so the system itself is still using 3.1.8, but in the shell I'm now using 4.0. When and if debian ever gets around to updating it, I can simply remove the locally compiled version and everything will be back to normal.

Whatever system script uses awk will be using full paths?

The PATH variable for the system will be different then a user's, because they have different environments.