I've been working for the last few months on a website in the Vitamin Supplement industry.
It has lead to an interesting SEO experience, not one that was completely unexpected, more of a practical reaffirmation of what I already understood.

Here's what happened -
The website (www.thenaturalshopper.com) has been favorably ranked in Google for around 7 years, for important keywords pertaining to the website niche.
The site was a DIY affair, built with some degree of skill on a Frontpage platform.
The site was content rich and made good use of keywords, text links, meta tags and all of the usual basic SEO building blocks. It also had/has a good number of incoming links, with a few of reasonable quality.
The conundrum facing us was how to implement a major design overhaul without losing organic listings?
The site was basically a mess. Around 180 pages with over half of those showing obsolete products and information. A rats nest navigation structure and just basically a poor surfing experience from a visitors perspective.
My gamble was to trust in the knowledge that Google places more value on incoming links and page content than superfluous elements like the template code. I convinced the site owners that they should not be held to ransom by Google, the website needed to be developed and Google had become an impediment to progress. Living in fear of upsetting the "search engine gods" was an inappropriate business philosophy.

To cut a long story short, we culled 50% of the obsolete pages, using 301's to reroute to more current content. We completely redesigned the template, using CSS to replace most of the tables and messy code elements. We restructured the navigation to create a more intuitive path through the website, but worked hard to retain the basic path structure, keeping high profile and useful pages one-step from the home page. We noted all incoming links and worked to ensure there were no 404's generated from outside the site.
We basically designed a new website from the ground up, being careful to retain some 'map' of the old site but feeling unconstrained by the possible impact on Google.
We felt serious about our claim that SE listings should not constrain the future growth of the website and were able to convince the site owners of this fact.

Observing the main keywords on a daily basis for a period of several weeks through the transition, we noted some minor movement in listings, usually not more than one or two places in either direction. After a month, the changes settled down and we found the listings for all major keywords to be in almost exactly the same positions as they were prior to the changes.
We dropped some traffic from the culled pages, but it wasn't useful traffic to begin with, as it was drawing from searches on products that my client no longer offered.
Steadily we've seen the traffic stats come back to pre-changover levels, as a new Joomla based article database and Wordpress blog have started to fetch results.
We've also seen conversion rates improve considerably, with Google analytics showing 25% - 45% improvements in all important aspects of the visitors navigation through the website.

So the lesson is quite clear - don't allow organic listings to be an obstacle to developing the content, appearance and user-experience at your website. Given a suitably aged domain, quality/quantity incoming links, and a good deal of well structured content, it should be possible to make wholesale design changes without significant loss of rankings.

Carl Hruza
www.topwebpromo.com