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We had some server issues this morning, and no thread was created for this story. Here are the two comments I've received in e-mail so far.

"Another problem I found with the update mechanism was that after updating the Facebook application it did not replace the old version but instead left both the old and new applications inside my Mobile Applications folder. This is the only update I've found for my apps so far so don't know if it was a fluke or Apple is simply neglecting to delete and replace the old app."

and

"While there's lots of attention being paid to 3rd party apps, no one that I know of has done an in-depth review of iPhone / iPod 2.0 support for the display of attachments (Word, Pages, Powerpoint, Keynote, etc.).
I am especially interested in the display of Keynote presentations both for local, in-hand viewing and for presentation via the new TV out cable that I don't have yet. I would probably be able to justify buying this cable from Apple if I could use it to make Keynote presentations available to an audience greater than five people. Transitions, Builds, Actions, Embedded Video -- what is sent to the big screen?"

My experience with it was brilliant. I saw the number "2" over my App Store icon on the phone, clicked it, and both application icon went gray while updating. My icons did not move or anything else strange. Perhaps it is the iTunes part that messes it up. I'd never seen such a slick update mechanism before; I've been a software developer for many years and I was blown away by the ease.

The application on both the phone and iTunes just doesn't seem to have the "latest" info.
For instance, this morning my phone had a neat little 1 in the red circle on the appstore application to tell me an application had and update. I open the application on the phone and its for Cro-Mag Rally. Great.
I open iTunes to before proceeding and I have the number 2 in a circle by the applications label indicated that iTunes thinks I have 2 applications needing update. I click on "show updates" and THREE applications appear.
To make matters worse by the descriptions it wanted to "update" Dizzy Bee to version 1.0 (when the version I have loaded in iTunes and my phone is currently 1.3.
Jive was an "update" to 1.0, which is the same version I have installed.
And Endigo needed to be updated from 1.01 to 1.02 (correctly).
Cro-Mag Rally didn't appear on the list. (Though it showed up as an update on my iPhone.
Curious, I clicked "Update All Applications" and then noticed the "Downloads" area showed 4 applications downloading - Cro-Mag was now downloading.
In the end everything worked out. Newer versions were not erroneously replaced with earlier versions.
But even after this process, the Applications tab in iTunes still showed 2 - indicating (falsely) that there were two applications that needed to be updated.
One final thing thats wrong. If you review your applications within iTunes it will now show todays date (7/23/08) as the purchase date for the app. I purchased this app on 7/12/08 but it was updated to the latest version on 7/23/08. Date modified also shows 7/23/08.
All in all things eventually get updated. But the amount of erroneous application update counts and information associated with the applications is really sloppy.
This situation is only going to get worse with the more applications I collect. Definately a motivation not to purchase many apps.

Actually, I never know where an updated application will appear - except that it doesn't appear where the original was. I've also been more than a little confused by the the App Store's claim that an application has been updated but the version number remains the same. Surely the developer has changed the version number. On more than one occasion I've seen disagreement between my iPhone's App Store program and iTunes as to whether there are any updates. And finally, having downloaded an update for one program and installing it on my iPhone, the iPhone's App Store program then insisted there was an update for that program.
On a different note - it is clear that Apple needs to redesign the launcher. I currently have 5 screens of applications and web buttons and it is becoming increasingly onerous to arrange and rearrange the screens.

At the moment I'm checking for updates on both iphone and in itunes and both say all apps are up to date. Yet I do notice a new version of Cro-Mag Rally is up and neither my iphone or itunes is letting me know that there is an update so there is definitely something buggy with the update system.

Also regarding what was said in the post...when an app is being updated it is taken from where I manually updated it to be(whether it be page 2 or page 4 on my iphone) and is placed on the first screen until done being updated and it stays there with the need of me putting it back to where i had placed it...not that its a problem but to back up the post.

Weird. I never saw anything on my iPhone about updates, but was reading about how Evernote and some others had been updated. It wasn't until I synched to iTunes, and used iTunes to check that I found them.
Supposedly a number is supposed to appear on the Apps Store icon on the phone? Never seen it. wtf?

I've been having similar troubles as Jon Seff. I have about 60 apps (I'm slowly weeding stuff out), so I'm not sure if it's the combo of an Apple AND an App problem. But i carefully arrange my 7 pages of stuff, the the update goes and puts a little used App on the front page where i like to leave a couple slots open. Or it'll take a front page app and put it in back. Very frustrating. Also, I'll get 7 updates in iTunes, but only 2 in the App Store. So then i have to sync (1 hour if I'm lucky), or delete and reinstall on the phone itself. I've also had issues where deleting an app from the phone will cause it to run slowly. So then i have to turn it off and on again, which can be 5 minutes. Not all all the smooth sailing I'm used to with the iPhone.

Some of my updates went pretty smoothly, the one that mattered the most was a disaster. The OmniFocus update which I was very much looking forward to (personally and because I use it to show coaching clients an example of a GTD program) froze and crashed on my phone. Suffice it to say that I spent a couple of hours trying to figure out what was causing iTunes to throw up an error saying it wouldn't intstall. Eventually I ended up restoring my iPhone that finally got past the bug and let it on. Way less user friendly than most of my experiences with iTunes and other Apple software. I look forward to it being a whole lot more streamlined.
If it had done what it looked like it was trying to do initially, show an update icon and just update my phone over wireless (not sure if it can do so over edge) I would be in handheld heaven.

I too get the "All Apps Up-to-date" when I try to update apps via the phone. If I go through iTunes, iTunes downloads the update but names it 1, for example BoxOffice 1.ipa.
Wonderful, now I have two instances of BoxOffice and of course I don't want the older version. Kinda lame.
The Applications view in iTunes is lame as well. Instead of giving the user the fancy view of the apps, I'd rather have a list view with full metadata displayed of the apps. The eye candy does nothing for me.

I got the number 2 by the apps icon on my wife's iPhone. I clicked it and it downloaded the two updates. There was blue progress bar at the bottom of each grayed icon. When I synced her iPhone and my 3G iPhone later in the day, the apps folder in iTunes indicated no upgrades were required. Trying to sync the wife's iPhone I got a message asking if I wanted to transfer apps from her iPhone that were missing in the appls folder in iTunes. I replied no. It keeps asking each time I sync her phone. No such problem on my 3G, which has all of the same apps. Should I choose to add those apps to my iTunes apps folder?

It has worked flawlessly for me. The only time I had trouble was when the NYTimes app was updated and then refused to run. Doing a iPod reboot was the answer. Updating Cro-Mag Rally right now.

Similar issues. Crow-Mag Rally. Both iPhone and iTunes told me an update was available. I let iTunes update. But iTunes won't update the CMR on my iPhone. App Store still tells me that an update for CMR version 1.0.2 is available. I get info in iTunes for CMR and it tells me its already at 1.0.2, but it just refuses to update the one on the iPhone. Pretty lame. I guess I'm going to have to download it on the iPhone manually too.