You won't be able to "upgrade" in iTunes. You must do a "restore" which will put a clean fresh 4.3.2 on there, which you can then jailbreak using redsn0w. You will likely need to do the restore by putting your current device in DFU Mode first as it is already jailbroken (see sticky on DFU mode for details)
But, you can restore a backup of 3.2.1 once this process is complete. When you first connect the restored iPad to iTunes it will ask you if you want to do this.
However, I personally do NOT recommend you do this. Restoring a backup of a 3.x firmware onto a 4.x can sometimes introduce issues. If you are looking for a good clean fresh start on new firmware I would recommend not restoring a backup of your old iPad. You can of course still sync all your apps and media back onto the iPad, it's your settings for the apps that you will lose.
You can see my upgrade procedure in the link in my sig. Again, I don't recommend you follow this for a 3.x to 4.3.2 upgrade because you may run into problems with incompatible Cydia apps between major versions of iOS.
If however you feel confident that you can manage those types of problems, by all means use your own judgement.
Hope that helps, and the upgrade is painless!
