You're right, the explore tab should show an update button where appropriate. The reason that Knossos doesn't do it, yet, is that for this to work I need to query both lists (local and remote mods). As mentioned above, this already works on the home tab but I should also implement it for the explore tab.
The duplicated install button is a simple oversight and should be easy to fix.
To fix your retail issue: open the FS2 folder which contains your retail files. There should be a mod.json file, open it and then replace ">=3.8.0-RC3" with ">=3.8.0-1". Restart Knossos (or click refresh) and try launching retail again.
I've changed the explore tab to also display installed mods, they should be marked by the little green icon in the upper-right corner. It's easy to miss but once you know it, it should be enough of an indicator.
The install button in your case installed the new version but didn't touch your old version; now you have both! The update button actually removes the previous version. Beside the fact that it doesn't prompt which packages to install (it always installs the packages you had before) it behaves the same as the install button.
I've also implemented banners. Feel free to test them.