Hi @iamcrawford
You are probably already aware, but for the sake of others who may read this thread I should make it clear that the IDE never updates libraries without the consent of the user. The user has full control over the updates. The IDE will automatically check for newer versions of the installed libraries and offer to install them, but the update is only done if the user clicks a button telling the IDE to do it.
Yes. The entire contents of the previously installed version of the library are removed when you do an update, replaced by the contents of the new version. Nothing in the library carries over from one version to another.
This would happen even when updating from one version of the standard library to another.
This is one of the reasons why a system like "User_Setup.h" should be avoided by library developers if at all possible. The ideal approach, which is used in the vast majority of Arduino libraries, is to provide the ability to configure the behavior of the library code via the API, so that all the user-specific configuration is contained in the user's sketch, not in the library.
Bodmer does excellent work, so I'm sure they had a good reason for taking this approach.