it's not clear to me whether you use Adobe Extension Manager to manage the updates (see http://forums.adobe.com/thread/795999?tstart=0 and/or "Packaging Extensions with ADOBE® EXTENSION MANAGER CS5" user guide) or you've written custom code for your extension to update itself (which may lead to the AEM conflict, possibly)
I'm using my own logic to determine whether there is an update available and if so, user cas click a button to download the ZXP file. Once the file is downloaded, it automatically executes, starting installation in Extension Manager. And after agreeing to the terms, EM says there is a conflict.
If I understand the EM update mechanism you sent me correctly, user has to start EM to check for updates. I personally never start EM by myself, only when I need something to install. My idea was that everytime extension starts, it checks for updates.
me too I'm not a big AEM fan, I've slowly been accustomed to it
I see no way to bypass the AEM alert, though - it has its own logic, perhaps: you make the program to install a newer version of an already installed extension, so it alerts a conflict. Yes, I agree, it should be a little bit smarter (it's ok to automatically remove version 1 if you're about to install version 1.1 of the very same panel) maybe it doesn't recognize the process as an update.
As a side note, it doesn't prompt anything strange when you update an extension via AEM, it works as expected.