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Upgrade to iOS 5.1 if you are going to try iOS 5. Many people who have upgraded still find it very slow and laggy though. If you read the Apple forums for 3GS users, a lot of them were not happy with the results of the "upgrade".
You might not want to write off iOS 6. Apple officially says that iOS 6 is compatible with the 3GS, although some features will not work (Facetime on 3G, Siri, Hearing aid support, etc.). I know someone who has iOS 6 on his old 3GS, and it works ok. There is no hiding the fact that the 3GS is underpowered for it though. The performance will not be great, but it should be functional.