I think the question about whether an update is really a delete and insert internally is a semantic question that is irrelevant to anyone but the DB2 developers. Suffice to say that on an update, the entire row is not logged, as would be the case in a delete and/or insert.
AFAIK, the clustering sequence of the table is maintained real time when the clustering index is changed, but I could certainly be wrong about that. It might be different among the DB2 platforms also.