If you have added recent posts functionality to the core code of the plugin then upgrading to a new version of the plugin would be a bad idea. If you’ve just modified the code in your theme, then don’t worry about it, upgrading both WordPress and plugin shouldn’t affect your menu. Even the first beta releases of this plugin will work with WordPress 2.7, so don’t worry about upgrading WordPress. WordPress has little/no effect on what the plugin does since it is simply adding extra code to your theme. The only potential problems are minor errors in the way the admin panel is displayed, but that isn’t a major problem, the admin page may just look a little oddball that’s all, it will still be functional.