Full price upgrades works for Angry Birds, but anything less episodic or standalone and you have problems. See Tweetie 2, for an example.
This issue is going to be rampant in the Mac App Store very very soon. It's been out for what, a year now? Time for a round of big updates... now you have two copies of all your apps.
What's the example, exactly? Genuinely curious. I upgraded to Tweetie 2 as soon as it came out. My impression was that it was very successful right up until Twitter bought Atebits.
Example headlines (Google "tweetie 2 paid update" for more):
"Tweetie 2 Pricing Controversy: An Interview with Tweetie's Creator ..."
"Tweetie 2: 'New App' – Will Spit On Existing 'Old App' Users | iSource"
"Still won't pay for Tweetie 2 upgrade? Try these Twitter apps ..."
"Tweetie pricing fuss highlights App Store flaw | Macworld"
In my experience, at least, it's more or less just a pathological behaviour that you can't escape.
This isn’t the case with productivity applications, necessarily – you can keep using Delicious Library 2 and it’ll keep working great, so we need a way to reward customers who say, “Yes, I’ll pay to have some extra functionality.”