I'm not a ZenPhoto admin or developer, but a user who's being doing a lot of upgrading recently. There are two approaches:
1. delete EVERYTHING except the "albums" and "cache" folders from your /zenphoto/ install location (also leave the "backup" folder if you have made database backups, but if you haven't made any this won't exist yet). Take the downloaded latest version, and upload everything except those two folders (you need to keep the originals so that your photos still physically exist somewhere). Make sure the three folders - themes, plugins and zp-data - are writeable as noted in the instructions (CHMOD 777 on all three), and make sure that /zp-core/config.php.example is copied as /zp-core/config.php - then edit the file to include your database username, password and database name.
2. what I find works is to do as above, except instead of deleting the old install, simply create a new folder (eg zp_1.2.9_old) and simply move the old files into it. This should leave you with "albums", "cache" and "zp_1.2.9_old" folders, and continue with the upgrade as before. This is what I do and I can now move between older and newer versions at whim simply by moving the existing version into its folder, and moving the other version out into the main /zenphoto/ folder. This assists in version-based troubleshooting.
Also, since you are using 1.2.9 at the moment, make sure you use the backup function to make a backup of the database before trying any upgrade! This way, if you accidentally overwrite your database entries, you can restore them again (it is a good idea to do this for the entire database and indeed website on a regular basis). Remember that a database user (eg. "zenphoto") which uses tables prefixed with "zp_" will still have its entries overwritten by a different user (eg. "zenphoto_2") if this other user is using the same table names and prefixes. Different users in the same database can still cause issues, and perhaps this is the mistake you made with your test install.