First question - if it doesn't work, how will you get back to where you
were beforehand?

I would recommend installing the new software into a new directory, and
you can do this while the server is still running (one advantage -
minimized downtime).  You might install it in /opt/informix/ids-9.40.UC7.

Next, you can carefully copy the configuration files you need from the
old (and in use) directory to the new directory.  Your $ONCONFIG file
would be one such - you would need to think about your sqlhosts file
too, and (if you're using encrypted communications, for example) you
concsm.cfg file, your pload.cfg file, and your backup files [more later].

If you've been dinking with role separation, or modified your audit
configuration, you need copy the modified files and directory settings
from the old to the new.

Since your old system is still up, you can run a final level 0 archive,
just to be on the safe side; make sure you keep them safely.  Before you
do that, you might run some oncheck commands to ensure that everything
is clean and tidy.

OK - now you are ready to think about switching servers...

Take the old server down; move the old INFORMIXDIR to
$INFORMIXDIR-9.40.UC2.  Then make a symbolic link the new directory
where the old $INFORMIXDIR was:

    ln -s /opt/informix/ids-9.40.UC7 $INFORMIXDIR

Now you can restart the server - fingers crossed.

If something goes wrong, you are in with a fighting chance that all you
have to do is take down the new server configuration, remove the
symbolic link, and create a new symbolic link to the old INFORMIXDIR:

    rm $INFORMIXDIR
    ln -s $INFORMIXDIR-9.40.UC2 $INFORMIXDIR

Then just bring the server back up under the old software.  If you'd
done what you suggested, you'd have to first find the install media for
9.40.UC2, or the latest system backup, and reinstall over your new
software, etc.  The way I suggest, your switch-back time is minimized.
If the worst comes to the worst, you have your new level 0 archive from
which you can restore the old system with the old software - with either
no logical log or minimal logical log recovery needed (basically, you
would only need the logs used while the level 0 archive was occurring).

Once you've done the switch-over to the new version and are moderately
confident things are working (say after five minutes), run a level 0
archive (again) for the new system.

Using ON-Bar - with which storage manager?

On this part of the question, I'm going to duck (sheepishly) and let
those who know give you the correct answer, rather than risk giving you
the wrong answer.