/etc/sysconfig/rhn/up2date has a setting for noReplaceConfig that specifies the default behavior for upgrading packages that might replace config files. This should be something the user can change in the configuration tool. This is also important as the screen in up2date to allow you to override the don't install option specifies that all these files were held because of how you have your preferences set.. yet up2date --configure doesn't allow you to change all of those preferences.
In the GUI configuration tool, this is the "Do not display packages when local configuration file has been modified" option which appears on the Retrieval/Installation tab. In the TUI configuration tool, it is the noReplaceConfig option. Changing this to be an enhancement request for better working in the GUI configuration tool.
the text in the gui config tool is lame... changing to "Do not upgrade packages when local configuration file has been modified" Should make more sense. Fixed in cvs.
Verified.