When you upgrade the managed package, the pick list values that you as a subscriber remain. New pick list values from the package are added to the pick list but not the record type available pick list options, you will have to do that manually.
I wanted to know for sure the answer to the second part of this question as well so I tested it as follows:
- Org with v4.20 package installed
- Changed an existing pick list value to something of my choosing
- Upgraded the package v4.40
- Picklist edit stayed the same
- The original value did not reappear
- New pick list values as a part of the package were added
From the documentation:
Picklist field values for custom fields can be added, edited, or
deleted by subscribers. A developer should carefully consider this
when explicitly referencing a picklist value in code. Picklist values
can be added or deleted by the developer. During a package upgrade, no
new picklist values are installed into the subscriber’s organization
for existing fields. Any picklist values deleted by the developer are
still available in the subscriber’s organization.
So the values in a pick list are versioned and the new values can be added in the subscriber org but the previous values are left as edited by the subscriber. From the subscriber point of view only new values are added...