Your problem has nothing to do with the UpdatePanel, actually.
Imagine what would happen if you had a 3rd LinkButton, which did nothing but postback. What would happen if you clicked the 1st LinkButton, the UserControl appeared, and then you clicked the 3rd one? What do you expect to see? If you think you will see the UserControl again, you are wrong. Dynamically created controls must be created every request, they don't stick around automatically. ViewState remembers the state of controls on the page, NOT what the controls themselves are in the first place -- thats what the markup in the aspx page does. Dynamically created controls obviously arent in the markup, so they arent automatically recreated.
You need to think of the lifecycle of a control as 'straddling' half way between two requests. It starts half way into one request and ends half way into the next. You need to save which user control is currently displayed in either a hidden field or a Page.ViewState value (not the user control itself mind you, just whatever information you need to figure it out), then reload that control from the page's OnLoad. If you do that -- the sequence will go like this:
(1) Click LinkButton1
(2) UserControl1 dynamically created
(3) Click LinkButton2
(4) Page.OnLoad reloads UserControl1
(5) UserControl1 loads its postback data and viewstate
(6) LinkButton2's click event fires
(7) Remove existing UserControl1 and add UserControl2 dynamically
(8) UserControl2 can have the same ID, since UserControl1 already 'consumed' its state.
I suggest you browse my series of articles on Understanding Dynamic Controls in ASP.NET:
http://weblogs.asp.net/infinitiesloop/