The headline question was, "Why does magit now prompt for which submodule to update?"
The answer is simply that magit's default interface changed at some point. (I believe) magit used to automatically operate on all submodules, but now requires an explicit selection in the submodules status section or a path.
The second question was, "Is there a way to go back the the old behavior where all submodules were updated?"
Apparently not, but there is a workaround that gets close. To use it, it's important to ensure that submodule information is visible in magit's status buffer:
Simply select all the submodules shown in the overview and then "o" "u" as before.
The magit documentation talks about "modules that are selected using the region," but unless module information is displayed, it can't be selected, much less seen. This was my confusion earlier--my magit configuration was not displaying any submodule information in the status buffer.
I discovered the missing hook in a magit issue discussion thread. Note that the original
magit-insert-submodules mentioned in that discussion has changed to
magit-insert-modules-overview as of version 2.11.0.