When is it time to upgrade? It depends. Nikon for example, comes out with new, generational milestone camera bodies every 4 years now. At two-year intervals, Nikon does intermediate or "s" updates. Best scenario with Nikon is to buy a new model of any particular price class as SOON as it comes out,and enjoy using a more or less state of the art camera for about 3.5 years, then sell it off as soon as the next model is announced.
Canon has been iterating its pro and its semi-pro models more rapidly--less of a "generational" or "milestone" iteration each time, but more like Nikon's minor or inter-generational updates. For example, the 40D to 50D was not much of a significant update--it was a few more sensor MP and a couple of minor tweaks, not really worthy of a new name or a new "class" of names.
Canon's 7D for example, is an attempt to create a very sophisticated camera to compete with Nikon's D300s. SO, if you want a better-than-middling AF system in a crop-body Canon, NOW would be a worthwhile time to upgrade from a 30D or 40D or 50D,right at the start of the Canon 7D introduction; you'll enjoy a state of the art body for 18 months, until the next new thing comes along. AND you'll gain an entirely new set of features and capabilities,since the 7D is a generational leap ahead, like the D200 and D300 Nikons were over the D100.
Sony's new 25 megapixel a850 Full Frame at under $2k....it might be time to consider that as a significant milestone upgrade if you're an a700 shooter
OTOH, if you buy something at the top of the heap in terms of features, like say a Nikon D700 or a D3 or a Canon 1D Mark III, the body and feature set itself will have tremendous capabilities,and newer models are unlikely to really significantly advance the class of images that can be made,compared with the prior model. The beginner and intermediate cameras are where the frequent model updates and brand war competition causes most people to see significant advantages in the newer models that each maker introduces as sales figures on models start to slow down. So,when to upgrade-- it depends on what you're shooting and what you want and what the new kid on the block brings to the game.