Do you mean on the Home Screen? Tapping on the app simply runs it. No update takes place. You are simply running the app. It has never worked the way you are describing it. Tapping on the app from the Home Screen or within a folder runs the app, despite whether or not an update is available.
If you mean in the App Store, the result when searching for the app that needs updating brings you to it's description page where the button that should say UPDATE again says OPEN.
Right now, I do not have the issue (after updating an app on the Mac/iTunes, then syncing it to the device). But it worked maybe an hour ago for 1/2 hour, then went back to having the issue. I have no idea if this current fix will "stick" or if it will again be back to having issues after awhile.