This has probably been asked, but...

Good idea or bad idea:

Upgrade my Mandrake 9.1 to Mandrake 10.0 by doing a FRESH install, but NOT overwriting my /home partition. This way, I can keep all my important files that I've used for Mandrake 9.1.

Or, I could do the UPGRADE option, but does it really work well?

This is why I reserve a separated partition for /home in my machine. It's aways easy to do a fresh installation without loose anything in my home. Be careful, choose "custom partitioning" (or something with the same meaning) to avoid loss of your stuff.

I am using a separate partition for my /home directory.

So you are saying it's safe and okay to do this? I don't mind Linux getting messed up because I can always reinstall, but it's my important personal documents/videos/pictures in my /home partition that I want to make sure doesn't get damaged.

Also is this an option: I have an extra partition with 40 GB being used for nothing. can I install Mandrake 10.0 onto that separate 40 GB partition? This means I will be using Mandrake 9.1 AND Mandrake 10.0

Yes, I did that 3 or 4 times and everything was OK. Be careful only when the install process is partitioning your system, if you do a bad choice your personal stuff goes and if you don't have back-up nobody will recover your data for you.

I've read somewhere it's possible to do a new installation (MDK 10.0) keeping the old, I never did that, but it's only a matter of an appropriated configuration in your boot manager.

I actually did try Mandrake 9.2 and kept my /home partition. 9.2 didn't work out so well so I went back to 9.1 and all my files were saved and everything was okay! I'm scared to do this again, but I think it will be okay.

I allways have a seperate linux partition just for saving files onto. For example, all the rpm files from the 3 cds are copied over to it and the package manager's source is pointed to it (hate looking for cds). Any downloads I have are also copied to this drive. It also is a place to store users home directories as well as a few key config files like smb.conf, etc...
Try copying your entire home directory to a safe partition that won't get deleted during the install. After the install is complete, just copy back what files/dirs you might need. The ~/Mail directory for example. If you use Kmail, don't just copy the entire .kde directory, but just the kmail config files. If you do things a step at a time, you can usually get a perfectly working "upgrade" this way.