Now at IDE 1.0.5, should I upgrade to 1.0.6 or 1.5.7 Beta for Pro mini and ATMega2560 use? Do I need to re-install many libraries (or similar 'house keeping' works)? Is the upgrade straight forward?

Apparently, from Arduino web, one need 1.5 BETA series for use with Due. For Pro Mini, UNO and ATMega2560, should one use 1.5 BETA or 1.0.6 (no beta, presumable stable)?

I am running out of code space. Wonder if the upgrade will install a newer gcc compiler and smaller code size?
I have had trouble with 1.5.7 (Beta), so I would stick with 1.0.6. As for code space, you might want to look into Atmel Studio (Free), which uses a Visual Studio shell as the IDE. It blows the Arduino IDE out-of-water. Atmel is the maker of all the AT chips, so the Atmel Studio IDE is a great IDE for writing AVR code. Lots of tutorials online and there is a Arduino plug in called Visual Micro (Free also).