1: never upgrade ANY software on any platform without ensuring a full backup first.
2: Check the forums for issues before buying updates to software you rely on.
3: if you can wait to upgrade, WAIT! Generally following: 1 week for major patches, 1 month for new major versions, 2 months for a major service pack or OS update (Os X retail releases updates may or may not fall under OS update), and 3-6 months for a major new OS version. Double this for Microsoft.
4: when updating an OS, always check all your apps and device drivers for compatibility first.
OS X is no exception. At best, common scenarios and some limited lists of extremes are tested, but since Apple has no "open beta" periods, and devs working on unreleased products have tight limits on speaking about it, Apple product releases should be approached with equal caution. There WILL be bugs, pretty much guaranteed.
Most likely, we're dealing with an issue here where your iPhoto library is already at least partly corrupt, or contains unexpected data iPhoto 11 was not tested to handle, and is botching a database migration process. Likely, all your photos are still there, but you loose albums, some photo customizations, faces, and more. To me, that would be devastating!
To be certain, we use a NAS compatible with time Machine and store both the Mac and Windows backups there, and use an archive slot to migrate backups of key directories off-site as well. I have about 600GB of stuff I do NOT want to loose, and that is the cost that comes with it. We also separately back up to a HDD (manually) certain folders about once every 2-3 months, as a fallback. If you only have 1 machine in the house, a simple backup is fine, so long as at least 1 backup set is not in your house at all times (trade drives with a family member, or get a safety deposit box). Leaving a backup drive plugged in all the time is a good way to get a virus on that drive, but also don't forget to plug it in regularly. especially imediately before an upgrades or patches.
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