Can lack of update cause screen distortion?
I'm not sure if I understand you, did you allredy sent that phone to repair or you bought new phone? However here is the thing: update or lack of update shouldn't mess up screen like that, the simptoms that apeared is 99% hardware issue, screen or gpu is dying. But just to make sure that isn't up to Android system you should perform factory reset before sending it back since it's under warranity, or you can try applying update if possible to see what happens.