Hi Derek,
The Setup page is not supposed to update existing feature instance settings, only default settings. Default settings are used when a new instance of a feature is created but can then be customized on the instance.
In the module settings page it will still show the new settings and if you save it it will update the instance setting.
If a new settings is added but the user has not yet saved module settings again for the instance, the feature code should use the default value if the instance module settings does not contain the setting.
Hope that helps,
Joe