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You can go straight to VxX.1.1 update 8 from 7.9.x just like with any other release. New with VX.n is the ability to have side-by-side installs of VX versions of software and to support this each VX.n release has its own WDIR. During the installation process you will be asked if you wish to copy the content of the 7.9.x WDIR to the new VX.1.1 WDIR - this ensures that your settings remain for the new version but it only copies files necessary to maintain the flow. VX.1.1 cannot be installed side-by-side with 7.9.x, to use 7.9.x you use the new Release Switcher to un-register any VX releases and re-register 7.9.x and vice-versa. For example I currently have VX.1.1, VX.1.2 and PADS VX.1.2 on my machine and 7.9.5 is also installed but to use this I need to un-register all of the VX versions using the Release Switcher.
As for libraries, with the usual exceptions of re-use blocks and any components that rely on the iCDB the libraries are compatible. It is entirely up to you whether you want to have separate libraries for VX.1.1 and 7.9.x. Personally I don't, but then I don't have the need to manage many reuse blocks.