Do you have to level up...

[Rath the Brown]

How about these sections from the Player's Handbook (emphasis mine).

From EXPERIENCE AND LEVELS , Advancing a Level:

Advancing a Level: When your character's XP total reaches at least the minimum XP needed for a new character level (see Table 3-2), he or she "goes up a level". For example, when Tordek obtains 1000 or more XP, he becomes a 2nd-level character. As soon as he accumulates a total of 3000 XP or higher (2000 more than he had when he gained 2nd level), he reaches 3rd level.

From ITEM CREATION FEATS , XP Cost:

...However, upon gaining enough XP to attain a new level, he or she can immediately expend XP on creating an item rather than keeping the XP to advance a level.

These two sections lead me to believe that you cannot wait to advance to the next level; you must do so as soon as you gain at least the minimum required to be the next level, except in the case where you immediately spend those XPs to create a magic item.