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All it does is update your Mac to Snow Leopard, and any incompatible applications are put into a separate folder. If you want to do a fresh installation - boot off your Snow Leopard DVD, then open up Disk Utility, format your hard drive and then install Snow Leopard.
 
Where is this folder?

What happens in the future if I want to re-install? Is there no archive option?

I think Apple is just assuming that everyone uses Time Machine. Archive and Install was useful prior to Leopard.

I don't really agree with the new installation method - it is a bit too simple. I never like upgrading an OS, I always want a fresh install just in case there's some tweaks I've done that I've forgotten about that will end up causing problems.
 
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