Game asks for in-app upgrade money again after re-installing - IPAD 2 / IOS 5
Until iOS 5 if you downloaded an app, and then removed it, then went back into the App store, then tried to download it again, it would still look like you were going to pay again until after you enter your iTunes password, at which point it would cross check against your purchase history and confirm that it would actually be free.

In iOS5 this behaviour has changed to show informative information such as "install" or "installed" rather than just show the price like it did previously.

I suspect that the in-app purchase mechanism is just a little behind the curve, especially if the app has not yet been updated fully for iOS5 (it hasn't - last update March 18, 2011).  I would confirm that the in app purchase history appears in your purchase history (use iTunes on your PC/Mac and check your account section for the easiest way to see this), and so long as it appears, I would proceeed and enter my password anyway, chances are that the old behavious will still apply, and it will happily just redownload it.  If it does by any chance charge you again, you can easily take it up with apple, and either you remember incorrectly or it's come down in price but I just took a look (to check the in-app purchase wasn't one of the "buy 100 coins" type that you can legitimately buy again and again) and it's currently only £0.69