Tested with ESX 4.x and ESXi 4.x which has a local datastore with VM in it. Both upgrade with VUM complete successfully with datastore still intact and VM still exist.
The only different is that, when you browse the local datastore which was upgraded from ESX 4.x, you will find the esxconsole folder in it which you would not see this if it was upgraded from an ESXi 4.x.
Update: Test with local datastore to test if it will be removed.
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