I'm creating a new VMFS5 Datastore and it says it's block size is 1mb, but when I look at the VMFS3 Datastores they also say their block size is 1mb, I though it was reduced in VMFS5 to gain more space back?
VMFS3 had a variable block size of 1, 2, 4 or 8MB. The default value was 1 and most people never changed it, or found out later that they should have changed it. The block size in VMFS3 influenced the maximum file size on the VMFS volume, with 1MB only allowing files up to 255GB.
Now VMFS5 has a uniform block size of 1MB which you can't change, but it doesn't suffer from these limitations. Though upgraded VMFS3 datastores will retain their original block size.
Makes me think I should just click the button "upgrade to VMFS 5" instead rather than create new VMFS5 Datastores and vMotion from one to the other?
Your approach with creating completely new, clean VMFS5 volumes is absolutely valid and what I would recommend if you have resources and can manage the additional work. There are a couple of advantages to this, like the LUNs will be formatted with GPT instead of MBR layout right away, VMFS sub-block size of 8KB vs 64KB will be used, pure VMFS5 allows more files etc.
