How do I upgrade my LG gt540 to 2.2 android - LG GT540 Cell Phone

If I'm not mistaken, LG did NOT release Android 2.2 for the GT540.
As of now, I don't recall ever seeing any news of LG releasing a 2.2 update.
It is possible to install 2.2 on your LG GT540, but it won't be much of a conventional way. You can install a custom ROM. This will require you to have your device rooted, but it's quite debatable if rooting is a right way to go (http://android.appstorm.net/general/opinion/to-root-or-not-to-root/). If you are willing to take a risk, there are custom ROMs available to you like http://forum.xda-developers.com/showthread.php?t=927379 (this one's actually 2.3 already) but again, these are all experimental, they void your warranty, but if you're willing to risk it, then go ahead. :D But remember, if you brick your phone, you'll have no one to blame but yourself.