Apple has just released a 10.3.2 update to Panther, and I am taking this opportunity to re-post a message from Jason on the MacNN Forums, explaining how ShapeShifter handles system updates:

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Here's the deal: ShapeShifter is pretty damned future-proof. There are about five different layers of "if it ain't what we expect, don't try to theme anything". So you can generally just go ahead and update your operating system and expect that the very worst that will happen is that you'll lose the ability to use themes.

That's the worst-case scenario.

But here's the general scenario: ShapeShifter will present a message saying that it has temporarily disabled itself when you first log in to your updated OS. The ShapeShifter prefpane will open. When you reapply your theme, ShapeShifter will contact Unsanity's servers (only with your permission) and grab a file that lets it figure out whether anything needs updating. Usually, nothing does and you're up and running again.

So, don't worry about updating your OS while running ShapeShifter. We put quite a bit of thought into making sure that SS won't give you any downtime.
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The bottom line: ShapeShifter is compatible with Mac OS X 10.3.2, and we'll try to keep it that way for all future upgrades. Worry not (if you ever did)!