Yes...its safe to upgrade officially thru iTunes to 3.1.2 and then use the new blackra1n RC3 to jailbreak and install Blacksn0w. However if you purchased your iphone brand new in the last 2 weeks or so you may have the new iBoot rom which Apple implemented to make things harder and inconvenient in terms of jailbreaking. Just google "tethered jailbreak" to see what I am referring to.
In regards to loss of settings and content....you can always do a back up first then do the restore to update the FW in itunes however I know some people have issues with things when after updating FW they do a "restore from backup" to get their settings, contacts and content...it just depends.