I have recently purchased the Webster Unabridged dictionary by Slovoed from an app maker Paragon for $60 dollars (back in November, I think). Recently, Paragon released version 2.0 of said app. However, App store has not notified me of the update but is instead showing version 2.0 for the same price as 1.0

See this image:

I don't think Mantis is alone in this "game" the App store is playing with customers AND developers. Paragon wrote me an email not so long ago saying they are at a loss why two separate versions are still listed at the same price and why I can't install the update.

The App Store seems to have problems, but I don't know that they are intentional. Yesterday I got updates for two free apps that I had. After updating them they later showed up again as available updates. I think I installed the updates three times in order to get them to not show up as updates that are available. I don't see that they had any incentive to do this with free updates to free apps.

I agree.  I don't think there's anything intentional going on here -- it's just that they dropped the ball with the 4.0 update.  Sometimes things go through very quickly, sometimes they linger on.  I'm certainly not going to cast the first stone here!