Shane, we should not be blocking localStorage on mobile at this point (though we will likely block it in the future).
However, if you shipped an app already, it probably used the default system webview. If you have upgrade to a recent cca version, we now use the crosswalk webview. That would mean that the localStorage backing changed, and would explain why upgrading seems to cause a "data wipe".
If this is what is going on, I would propose shipping an update that continues to use the old webview (you can disable crosswalk by adding "webview": "system" to manifest.mobile.json). Then, migrate data from localstorage to chrome.storage.local on startup. Once your users have transitioned storage, you can consider swapping to crosswalk webview.
Let me know if my guess is wrong, and we will help figure this out!
-Michal