This is anekdotal and just describes my personal experience in the 90s:
I can't remember quite when I did it, but I upgraded my A500 to KS2.0 back when it was the latest release of the OS somewhere in the 90s. I never found a huge problem with compatibility for games or anything else.
My memory expansion still needed to be disabled for one or two games (by means of a little switch on the side of the case), but for the most part everything seemed to just work.