I don't think a new release makes the old release obsolete - that comes when they stop providing patches for it. If you're using an LTS release, like 10.04, you've got three years worth of support.
You don't need to update to the latest version every time - the 18 month support window for non-LTS releases is pretty decent. It means that they can have a quick release cycle to get support for new hardware out fast and get a fresh round of attention for each new release while not obsoleting old installs too quickly.
And if, like many people here, you feel the need to upgrade just because there's something new, odds are there'd be something else shiny demanding your attention anyway!
Honestly LTS releases are only viable for 3 years if you're OK with 3 year out of date versions of software. They never import new major versions of anything, so you're stuck with whatever (eventually old and crufty) version you got. Hardy was stuck on an old and crashy version of Pidgin for a long time, whereas newer builds were actually much better.
Isn't that rather the point of opensource?
I rely version 2.xx of Blah, i want security fixes to version 2 without being forced to update to blah 7, with all it's new incompatibilities and bugs, just because somebody has a sales target
Yes, that's exactly what LTS releases are for. I wouldn't use one on my personal desktop machine, but for a production server platform I specifically WANT three years out of date versions of software, since the latest and greatest may behave differently and break everything.
If you were deploying Ubuntu company-wide and had custom desktop software, you'd want an LTS release on the desktop too, for the same reason.
Stability versus agility is a trade-off. In some cases it makes sense to pick a fast-moving platform. In others it makes sense to pick a slow-moving one. With the combination of a six-monthly release cycle and three year support on LTS releases, Ubuntu gives you both platforms to pick from.
"This is where Ubuntu Backports comes in. The Backports team believes that the best update policy is a mix of Ubuntu's security-only policy AND providing new versions of some programs. Candidates for version updates are primarily desktop applications, such as your web browser, word processor, IRC client, or IM client. These programs can be updated without replacing a large part of the operating system that would affect stability of the whole system."
You don't need to update to the latest version every time - the 18 month support window for non-LTS releases is pretty decent. It means that they can have a quick release cycle to get support for new hardware out fast and get a fresh round of attention for each new release while not obsoleting old installs too quickly.
And if, like many people here, you feel the need to upgrade just because there's something new, odds are there'd be something else shiny demanding your attention anyway!