You're correct. If you want to run 8.5(1) in production while on ESXi 5.1, you would need to upgrade the VMware Tools on the VM. If you're going to upgrade to CCX 10.5 in the same maintenance window, that won't be necessary. Just be sure to do it at the end.
VMware Upgrade Methods KB: http://kb.vmware.com/selfservice/microsites/search.do?language=en_US&cmd=displayKC&externalId=2032757
DocWiki Upgrading VMware Tools: http://docwiki.cisco.com/wiki/VMware_Tools