Hi Chris,
Although the change from D-35 to D-40 would be an upgrade as far as the trimmings are concerned, it would not automatically be a better guitar. These two models are very sililar as far as the woods are concerned. You've probably been playing your D-35 for some time and probably know it inside out . If I were you I would definitely invest a little playing time in the 'new' D-40 first and not automatically switch to the next one up in the price list. It might be a better guitar but don't count on it.
Good luck!
Hans Moust
P.S. Hope you don't mind me answering on this forum as well!