It sounds to me like if you ignore the letter and do not have the ECU software change done, you have no lifetime warranty.
No question about it - you have to get the update to maintain the regular warranty. My only concern is reduced performance/throttle response but then there really is no choice, so I'll get it done soon. I just got my letter today, so yes, OP, now I've heard of it!
In considering what could happen if the knock sensor detects a problem and the car goes to the dealer, I am thinking they would replace the engine rather than putting in a new crankshaft, connecting rods and pistons. I'm not happy about this turn of events and my opinion of KIA is being affected. I'm crazy about my SX and don't believe it has any bottom end problems but I have to admit I'm starting to lose confidence in the vehicle. I mean who wants to take off on a trip in it with the specter of dropping some rods hanging over it? The hell with it - I'm not going to change how I drive - if it fails, it fails. I will tell you this - this is the end for KIA. What a shame - they gambled on this engine and lost - they had success in the palm of their hand and decided to cheap-out.
I guess you all know that the connecting rods are 'powdered metal' (MIM). This problem could be caused by the MIM rods being softer than expected, allowing the bearing to open up a little, causing a rod knock. Once this starts, the crankshaft begins to be damaged and the engine does not have long to go.
So, the purpose of the new detection software is simply to help the owner get to the dealer while the car is still running. There's nothing that can be done for the engine to help it last longer at that point except take it easy, which is accomplished by the 'limp mode'.
The bottom line on all this is how this campaign affects the value of the affected vehicles - I think we are basically going to lose our esses on this deal. Who is going to buy one of these grenades used, no matter how nice it is?