Here are the steps needed to upgrade the SlimServer that comes with LinuxMCE (0704) to a newer version of Squeezecenter.

Upgrade SlimServer

mv SlimServer SlimServer.lmce

Move the downloaded file to /usr/pluto/servers and unarchive it.
Make a soft link to the new directory. This step just makes upgrades or downgrades go a little faster.

ln -s squeezecenter-some-version SlimServer

Add a user slimserver and a group slimserver This is the default that Squeezecenter runs as
Change the ownership of squeezecenter's directory to that of slimserver.

chown -R slimserver:slimserver squeezecenter-some-version

At this point you should be able to restart the dcerouter. This should start the new version of squeezecenter

Configure SqueezeCenter

Squeezecenter needs a little configuration before it will work with LMCE

In a web browser, goto http://dcerouter:9000 This should bring up the SqueezeCenter Setup Assistant.
Click on next in the lower right hand corner.
If you have a squeezenetwork account, enter the login on the SqueezeNetwork Account setup screen.
Click on next in the lower right hand corner.
On the Music Source screen use local music should be checked.
Click on next in the lower right hand corner.
On the Local Music Folder screen, browse to

/home/public/data/audio

/home/public/data/playlists

This is only for SqueezeCenter playlists, not LinuxMCE playlists