Assuming that the upgrade process won't take more space than the size of the base installation itself (e.g. if the base install is 3GB, the compressed packages for upgrading won't be 3GB themselves), and assuming that the increase in the size (post upgrade process) wouldn't be nearly that much... I'd say 4+ GB free is a nice safe amount (and probably overkill).
Given the price of USB flash and microSD cards, I'd whole-heartedly recommend paying some $10 in exchange for quintuple the space and not having to worry about this. I'm particularly partial to Sandisk Ultra Fit drives, solely because they're the size of a wireless keyboard dongle and cheap.