Holding observations fixed but not updating on them is simply a misapplication of UDT.
A misapplication, strictly speaking, but not "simply". Without restricting your attention to particular situations, while ignoring other situations, you won't be able to consider any thought experiments. For any thought experiment I show you, you'll say that you have to compute expected utility over all possible thought experiments, and that would be end of it.
So in applying UDT in real life, it's necessary to stipulate the problem statement, the boundary event in which all relevant possibilities are contained, and over which we compute expected utility. You, too, introduced such an event, you just did it a step earlier than what's given in the problem statement, by paying attention to the term "observation" attached to the calculator, and the fact that all other elements of the problem are observations also.
(On unrelated note, I have doubts about correctness of your work with that broader event too, see this comment.)
So in applying UDT in real life, it's necessary to stipulate the problem statement, the boundary event in which all relevant possibilities are contained, and over which we compute expected utility.
Yes, of course. But you perform normal Bayesian updates for everything else (everything you hold fixed). Holding something fixed and not updating leads to errors.
Simple example: An urn with either 90% red and 10% blue balls or 90% blue and 10% red balls (0.5 prior for either). You have drawn a red ball and put it back. What's the updateless expected utility ...
Consider the following thought experiment ("Counterfactual Calculation"):
Should you write "even" on the counterfactual test sheet, given that you're 99% sure that the answer is "even"?
This thought experiment contrasts "logical knowledge" (the usual kind) and "observational knowledge" (what you get when you look at a calculator display). The kind of knowledge you obtain by observing things is not like the kind of knowledge you obtain by thinking yourself. What is the difference (if there actually is a difference)? Why does observational knowledge work in your own possible worlds, but not in counterfactuals? How much of logical knowledge is like observational knowledge, and what are the conditions of its applicability? Can things that we consider "logical knowledge" fail to apply to some counterfactuals?
(Updateless analysis would say "observational knowledge is not knowledge" or that it's knowledge only in the sense that you should bet a certain way. This doesn't analyze the intuition of knowing the result after looking at a calculator display. There is a very salient sense in which the result becomes known, and the purpose of this thought experiment is to explore some of counterintuitive properties of such knowledge.)