An upgrade MSI requires the MSI to have a new ProductCode, an incremented ProductVersion (in the first 3 fields) and the same UpgradeCode. So it's not clear to me that you're actually getting an upgrade, depending on what the Burn part thinks you are doing. It can't do an upgrade because you have the same ProductCode. (You need a MajorUpgrade element in your MSI to do a proper upgrade). So there is some doubt as to whether you're getting an actual full upgrade. If your intent is to replace the installed MSI with a full upgrade, and a higher versioned product then use MajorUpgrade.
So Burn may have decided to do an in-place update by reinstalling the MSI file (and that's more like a patch than an update), and that's relevant because you don't say whether you have any custom actions or WiX util functions (they are still custom actions) that create a user account. If you do, then the most likely reason for your error is that Burn reinstalled your new MSI as an update by reinstalling the MSI file, and some custom action simply ran again, and yes, that user is still there because there has not been an actual uninstall that would delete it. Or the ProductVersion of your MSI is the same and you got a maintenance mode repair, so a custom action would run again.
I'd get a verbose log of the upgrade to see exactly what's going on.
There's a lot of guesswork here because you say you want an upgrade but your MSI isn't built to actually do an upgrade, and you don't say if you have WiX util User in there to create a user account. You also don't say if you have incremented the ProductVersion of your new MSI either, so again that results in more guesswork as to what Burn might do. The verbose log would show whether it's a custom action issue or something else, what kind of update (if any) that you're doing.
