It should just see that the updated RPMs are not installed and update them again.
Yes the zypp update is marked "not installed", but this time both the zypp and the kernel update are ticked for installation, thus negating the clerverness of ensuring a zypp update before doing anything else. Not sure whether this is intended or a good idea.
A further, unrelated, reason for my problem here is that after uploading my hardware details to Novell I got landed with http://ftp.kddilabs.jp/Linux/packages/SuSE/suse/update/10.2/ which turns out not to have a rpm/x86_64/ causing all update attempts to fail. Is Novell keeping track of all the mirrors and what they carry?
There is no feature to tell yast "this mirror you suggested is no good, suggest the next one please". Manually entering an installation source should of course work.