Agreed. I can't see the S1 to S3 upgrade kit saving you more than what you can net $$$ selling your S1s.
In my neck of the woods I can sell the S1s $200 cash easy.
You got a good point, with the next difficulty forecast at 19+%, the ROI may not make sense. Some back of the napkin math would seem to say that BTC would need to hit about $750USD for it to make sense if the S3 upgrade is 1BTC.
Either way, I think mining is going to hit a bloodbath moment around november or december if prices still bounce around 500/600 range. You'll need around 10TH of power to equal about 3TH of power today. You either upgrade or you find yourself in the junk drawer with the usb miners.