So I did some experimenting and maybe it will help others.
I killed my upgrade after 3 hours and refreshed from TFS to get back to clean state.
_references.js MUST have auto-sync disabled...learned that last upgrade. You can turn it on again and re-sync after the upgrade is done.
Then I manually removed the Content\kendo folder from my project. This took over 10 minutes just for this step.
I then found this: https://www.cloudconstruct.com/blog/slow-file-management-in-visual-studio-connected-to-team-foundation-services.
I had 8 workspaces mapped. I unmapped 5 of them. I did not restart VS.
I then manually removed the Scripts\kendo folder from my project. This took seconds!
I reverted everything back again and re-ran the kendo upgrade wizard. This time it finished completely in 15 minutes instead of still running after 3 hours. Presumably it would have been quicker if I had unmapped all workspaces except my current one.
So, if you use TFS, you MUST turn off _references.js auto-sync and, more importantly, unmap any "unused" TFS workspaces before doing any mass file updates to your solution, either manually or via the kendo upgrade wizard.