Hi BigDan,
You can upgrade the T40, the best way to find out would be to go to IBM's web site (Levno may have the info now) and enter your T40 and the model number in the support section questionair. You will have to do search for the current processor, on the table it will show all the models and the processor in each one.
I upgraded my T30 from a 1.8 GHz to a 2.1 GHz a couple of years ago, works great.
While you are there grab the pdf for disassmebly/reassembly. Becareful cracking the case (opening it) or you will breake the thinner places. I used two platic putty knives (cheaper than the tool IBM sales) to open the case, the plastic won't gouge the plastic.
Good luck with the upgrade if you go through with it. If you want the full details and pitfalls contact me through the forums.