Drupal - Right way to update a drupal distribution?

You should try it with drush.

drush dl commerce_kickstart
drush updatedb -y

(I have not tried it for commerce kickstart; I just got the answer on drupal.org.)

Commerce Kickstart has a documentation page explaining how to install or update the distribution: http://www.drupalcommerce.org/commerce-kickstart-2/install. It is linked from the project page on drupal.org.

The updater inside Drupal can't update distributions (or Drupal core itself), so it can't work for Kickstart.

Although "drush pm-download" should work, there is an initiative to have this work with "drush pm-updatecode" as well. See the issue on Github Drush up should update contrib profiles as well for details.

At the time of this writing, there's nothing available for use, but hopefully there will be usable code soon. Feel free to contribute to the thread so that we can get this done faster.