From past threads, it seems that the 3 day hoppers in packages are about the same cost as the 3 day hoppers with pre-purchase discount from the disneyland.com site. Seems a general rule of thumb.
We upgraded our 3-day CityPass tickets to an annual passport last month. They gave us $149 credit for the kids and $179 credit for adults, so we had to pay an additional $120 for the kids and $90 for the adults.
You upgrade it at Disneyland. If you're upgrading to a Season Passport, you do it to the right of the main gate Disneyland entrance at the Season Passport office.
No need to use the Universal, SeaWorld, and San Diego Zoo options first. The first time you enter Disneyland, they'll give you their normal paper pass that you'll use on your other two days. You won't need the CityPass at Disneyland after that, just the Disneyland pass.
Make sure you use your Early Entry day and any blocked out days before you upgrade to the Season Passport. If you have a blocked out day more than 3 days into your trip, you might be able to do it in two steps -- first upgrading the 3 day pass to a 6 day one, then upgrading the 6 day pass to a Season Passport.