Hi Ernie,
So when you touch the "Update" button on the App Store, it just launches the old version instead of downloading/installing the update? Sounds like there may be a problem with the app store. Our iPads all updated okay, including our iPad 2. So I don't think there is an intrinsic issue with this version.
I found this article on some tips if the app store is misbehaving like this: http://ipad.about.com/od/iPad_Trouble....
Hope this helps,
Walter