This can all be very confusing when you are starting out (I know). But, really its not if you like your installations plain vanilla, as I do. You have been to the 3rd Rail/ERR website, I guess. Go back and peruse the manuals online. This will be confusing and eventually informative.
I really don't like the term 'upgrade", which everybody uses, including me. You will not be upgrading the MTH electronics; you will be replacing them.
If you could find someone in your area who has done this, pay him do one or two for you and show you how. Also, there have been articles in OGR (and other places) on this "upgrade" process.
If you are feeling brave, pick one of your plastic-bodied (easy antenna install) diesel locos (no loco/tender tether to handle), buy an ERR Cruise Commander kit and Railsounds diesel sound kit, open up the loco, read the instructions. Again. Again. Look around. Basically, PS2 boards are removed, AC track power from the trucks goes in to the Cruise Commander, DC to the motors goes out. There are drawings. The sound board plugs into the Commander. Ignore the smoke unit for now. MTH uses low-voltage bulbs; ERR uses higher voltage bulbs.
Several experts on this here on the forum. I'm not one of them, but you can get plenty of help.