ALWAYS "install zip from sdcard". It's very very rarely to use "update.zip" option on cwm. Anyway, nand backup is always your friend. U wanna be 100% sure, then flash first xwla4 and then titanium over it. Otherwise you may do a full wipe and install on your 2.3.5. NONE can answer you if it's gonna be perfect or not. I assume it's not gonna be a problem if you wipe data before, but you must find out it by yourself.