Steve: is right. It's done both ways. But before you decide what to do, I'd like to share some thoughts.
Whether the wood is rotted or not, I suggest it be removed and vinyl soffit be installed because this allows for FULL air flow up and under the roof rafters. Usually, when the wooden soffit is left in place (assuming it's been replaced or already in fine condition), 4-5" holes are drilled into them between the rafters. Now, the holes aren't usually centered, nor are they usually done between EVERY rafter. You see, when the woodend soffit is removed and vinyl is installed, the ENTIRE soffit is 'vented'.
It would be a good idea to install a Ridge Vent too to 'assist' the cooling by the soffit vent. This can be done on an existing roof and doesn't require you to redo the entire roof. If you need more info, e-mail me directly or post back.