If you have enough memory in your router you don't HAVE to delete the IOS image. You can simply change the boot order of the IOS image. That way you can say use this IOS to boot from if that fails use the old IOS image. I do this all the time so that if the new one fails it will revert to the old IOS that I know is working.
Type the command in order you want the images to boot
(config)#boot system flash c3640-is-mz.122-1.bin
(config)#boot system flash c3640-is-mz.120-1.bin
You can confirm this by looking in your config file
notice that I am only running one bin but if I wanted to I could add multiple bins in order. Just type them in the order you want them to boot so if one fails it will kick over to the next one. By default it it can't boot from any of your bins then it will just revert to the boot helper.
Current configuration : 5155 bytes
! Last configuration change at 10:08:29 MST Thu Jul 3 2003
! NVRAM config last updated at 10:05:26 MST Thu Jul 3 2003
no service single-slot-reload-enable
service timestamps debug datetime localtime show-timezone
service timestamps log datetime localtime
boot system flash
boot system flash c3640-is-mz.122-1.bin
If you don't have enough memory in your router to store both IOS versions then yes you would have to delete the old one. You can also delete the old IOS image once you have been running on the new IOS stable for ahwhile. Just good houskeeping.
A good rule of thumb before upgrading or performing any changes on a router is to have a backup of your IOS image and config file. Just setup a tftp server (you can get this free on the Solarwind.net site http://support.solarwinds.net/updates/New-CustomerFree.cfm
once you have the tftp configured and running and connected to the network you just do a couple of simple commands
#copy startup-config tftp
(this will make a backup of your current config on the tftp server and it's really easy it will prompt you through everything)
If you wanted to restore a config from the tftp server you would reverse the command
#copy tftp startup-config
It will prompt you through everything
then to backup your ios image you just do
#copy flash tftp (it will promt you through the rest)
To load a new image you can throw the new image on the tftp server and say
#copy tftp flash
I hope all of this helps.