Q:

Why does upgrading jQuery break the jQuery UI functionality? 

Here's the fiddle:
http://jsfiddle.net/KpEMc/1718/
Everything is perfectly fine with this one.  It is JQuery 1.4.4 version.  But when I update the JQuery version to the latest one, it does not work.  Why? 
The updated version can be found here. 
Here is the JS code:
$(document).ready(function(){
    $("#sample").mouseover(function() {
         $(this).animate({ backgroundColor:'#f00'},300);
    }).mouseout(function() {
        $(this).animate({ backgroundColor:'#ccc'},300);
    });       
});

A:

You are not selecting jQuery UI.  Just tick jQuery UI 1.9.2. 
Here you go: Working jsFiddle
You should also try
on("mouseover", function() {} );

