Better update routine?

But that's exactly my point. In application you have all the config, routing etc. that you usually modify. You add modules and stuff to that application folder, and then when any of those (config files, libraries etc) gets updated you manually have to copy/paste lines of code from your modified files back into the updated ones.

No, you don't have to compare changes to, or modify anything under application/.

Even if something in there changes, it is mostly comments (irrelevant). In the rare event that a new config option is introduced, or a default value has changed, we do that in a BC-preserving way, it is explicitly mentioned in the upgrade instructions AND it never happens on a patch (i.e. the Z in x.y.z) release if it requires your attention.

I know that you shouldn't touch the system folder for that same reason, BUT the reality is, that the same actually goes for the larger part of the application folder ... and that's to be honest a little misleading.

That is some alternative reality you're talking about. You don't even have to use application/; it's just a sample skeleton to get you up and running fast.

Am I really the only person who think it's weird that system shouldn't be touched but changing stuff in application is ok. To me they look much the same in the sense that they contain stuff that potentially gets updated by the CodeIgniter team ...

Yes, you are the only person to think that. Literally every piece of software that uses configuration files is shipped with those configuration files, and you are expected to change them.