It's hard to say how much of that was noise, and what effect it had on sales / success, but there was a lot of hype about the paid upgrade leaving people unhappy.
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"
Fair enough. I'm not sure a mechanism for having paid upgrades under the same name as the original app would have avoided any of those headlines, though.
You don't? If people had complained about being charged a reasonable, discounted upgrade price for Tweetie 2, they'd have been laughed at. That has been a common model for software upgrades for as long as I remember (and quite probably longer than I have been alive).
People always complain about being asked to pay to upgrade. If they don't get a discount, they complain about that. If they do get a discount, they complain that the upgrade "should have" been a free minor version bump instead.
In my experience, at least, it's more or less just a pathological behaviour that you can't escape.
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"