You can delete the old version once you're happy with the new one -- and have transferred any customisations, eg standard sheets. In the personal version there's not much scope for customisation though, so I don't suppose many people try.
I see that M4 5.2.1 uses 651Mb of disc space now, when Medusa was first ported to the Sun/Unix platform the machine had just one 42Mb disc, and the operating system had to fit on there too. It took some days of work to discover exactly what could be missed out from the normal OS install, how much swap space was necessary, and then to write the installation manual for the "MedusaStation". I think there was just 2Mb left for the user's drawings once the full set of Medusa modules was installed!