update-source updates to 5.3 as well
I have recently installed PIAF 1.4 (first time using it), and let the "update-source" script update run all the updates, which also brings the system to CentOS 5.3. Everything is fine with it.
Since the 5.2 -> 5.3 update was done by update-source, the PBX components were downloaded and re-compiled again immediately following.
Since it's potentially a problem, my suggestion would be to restrict updates to the same version out of the box, by changing "$releasever" to "5.2" or whatever's appropriate in /etc/yum.repos.d/CentOS-Base.repo (several lines will need to be changed).
Staying with the same major/minor version will still let you get security updates, while avoiding risk of unnecessary breakage by installing other unneeded updates and other changes. Personally, I do find security updates important (though not all are necessarily applicable, and there are varying levels of importance). This being CentOS, based on RHEL, the number of updates is very moderate compared to some other, more "cutting edge" distributions.
Lastly, yes, always have current backups. For systems like this, I personally like to have a recent disk image on hand in case something really breaks (hardware failure or other). If you have that, and a periodically scheduled "regular" backup kept on another machine and/or offsite, you can be up and running pretty quickly with very minimal or no data loss at all in case disaster strikes.
Anton