Did you install initially using the one-click option?
It will rename /gallery2 to gallery2.old and then install the new version into a new copy of folder /gallery2 so that the data/settings are available. It will run you through the config process again when you first login to the updated gallery.
The email from the happy robot is like:-
We just upgraded your install of gallery as requested at:
Any custom skins or plug-ins you might have added may need to be re-
installed… your old installation is still available at:
If for some reason you need to restore it, just rename the directories
with your FTP client.
The Happy DreamHost 1-Click Robot!
Where of course I installed it initially into /gallery