To follow-up on this, it looks like it did not automagically replace the old 128 kbps files -- it seems you have to do that manually by deleting the 128 version and downloading the 256 one ...

Although its still somewhat of a mystery why I now have more songs on my library than when I began -- I have yet to crunch through the whole thing but perhaps it duplicated some stuff for some reason ...

In other news, the iTunes Match feature on my iPhone and iPad is pretty boss -- it now lists my entire library that's now in the iCloud with a button to download if I want them on either device. Neat!