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