I have just made this exact upgrade from 1000D to 40D.
I've got to say.........the upgrade is a worthwhile upgrade but it isn't as noticable as some might expect it to be for the money. The big difference is the FPS for successive shooting, but like some have mentioned, this may not be needed for what you shoot. Other functionalities like the jog wheel and LCD display are nice added bonuses, and it has spot metering which 1000D does not. I think many upgrade to the 40D because they find the size fits in their hand better.......I actually find the 1000D a good size and not too bulky, but I have small hands. The 40D does feel a lot better built though, and larger/heavier lenses do feel more balanced on it than on the 1000D.
Don't expect the image quality to be much different from the 1000D though, this will be more dependant on the lens you are using. Shots I took with my 17-55mm on both bodies, were just as good as each other in normal conditions. The difference I've found is that the better body allows you to utilitise the lens more whilst you're shooting, like better ISO capabilities and quick shooting.
My advice is, don't expect the body upgrade to transform image quality, but it offers more functionality to the user. It's only a worthwhile upgrade if you have already invested in top quality lenses and have some extra cash you can spare on a body upgrade. Otherwise, I'd definitely upgrade lenses first, and keep the 1000D until you have spare funds.