I doubt that is the reason for the HUD lag issues - 8.3 is supposed to be a bit quicker than 8.2, but I'm not sure it's really a noticable difference until you get to really big DBs. Maybe one of the postgres experts can give us a better answer..
It's not absolutely straightforward, but there are a couple of links about upgrading postgres in the
Database / Postgres FAQ.
If you are using Vista, please see this too:
Attn: Vista Users Installing PostgreSQL 8.3