Just a quick note. Wordpress 2.9.2 came out today, and I found that since my server upgrade, the core auto-update/upgrade feature wasn’t working. It wanted me to have FTP access.
Turns out that the website folder itself (in my case, since I host on a Mac, a folder within /Library/WebServer/Documents) wasn’t owned by www. Once I chowned that to www, the auto-upgrade worked perfectly.
Everything else was already owned by www… so, just make sure, the folder wordpress resides in is also owned by the web user (the user httpd runs as).
Good luck! And remember, Happiness is only a chown away.