Well, well, well - that's an interesting post coming from within D-Link - here's what I have to say.
First - NONE of the firmware updates will reformat the hard drives - some of them may require you to reformat but you will have to click on a button or in some other way agree to the reformat, and yes, if you reformat you will lose all the data unless you have it stored elsewhere.
You mention being at firmware 1.02 - under 1.02 you had a choice of ext2 or ext3 file systems, and ext3 was removed, I believe in the 1.03 firmware - so if you are running an ext3 file system under 1.02, then yes you WILL need to reformat - if you are running ext2 you could get away without a reformat.
Apart from the removal of the ext2 file system, there was a change to the partition structure in either the 1.04 or 1.05 firmwares, so that it will prompt you to reformat, but will allow you to skip the reformat and access your data.
There is also another change in between the 1.07 & 1.08beta firmwares, although I cannot state definitively what this change is - but since the release of the 1.08 beta is an "anyday now" expectation, you might want to hold off that upgrade until it is released and then make one backup, upgrade and reformat deal.