I'm working on modern Windows 8 app and wanted to figure out if Windows.Storage.ApplicationData.current.localSettings (msdn doc is here) get cleaned up when the app gets updated by the store.
Those settings are preserved across app updates, as are the roamingSettings and the contents of localFolder, roamingFolder, and tempFolder. In other words, performing an app update does not affect any of the appdata state, which makes perfect sense when you consider that many updates are minor bug fixes and should not in the least way require resetting or migrating existing state.
Do note that uninstalling an app and then reinstalling it will clean out localSettings, localFolder, and tempFolder. roamingSettings and roamingFolder will be restored provided that the user has had the app installed on another device within some reasonable period of time (unspecified, but something like 30 days).
It's also good to know that app state has its own versioning scheme through ApplicationData.setVersionAsync, and that an app update can choose, if it wants to migrate appdata from one version to another. Examples can be found in the Application Data sample.