Plpgsql seems to be deleting and inserting instead of updating - Why? I am using postgreSQL 7.4.

I have a large table , call it table_a:

key1 INT NOT NULL, 
key2 INT NOT NULL, 
data INT NOT NULL, 
itstamp INT NOT NULL DEFAULT (date_part('EPOCH'::text, (timeofday())::timestamp without time zone))::INTEGER


and a table that summaries the last update time for key1, call it table_b:

key1        INT NOT NULL,
max_itstamp INT NOT NULL


I created a trigger function in plpgsql to update or insert rows in table_b as necessary:

CREATE OR REPLACE FUNCTION table_b_update() RETURNS TRIGGER AS '
 DECLARE
  l_key1 INT;
  l_itstamp INT;
 BEGIN
  l_key1 := new.key1;
  l_itstamp := new.itstamp;
  PERFORM TRUE FROM table_b WHERE key1=l_key1;
  IF NOT FOUND THEN 
   INSERT INTO table_b(key1, max_itstamp) values (l_key1, l_itstamp);
  ELSE
   UPDATE table_b SET max_itstamp=l_itstamp WHERE key1=l_key1;
  END IF;
  RETURN NULL;
 END'
LANGUAGE plpgsql IMMUTABLE;


and then I attached a trigger to table_a:

CREATE TRIGGER table_a_trigger1 AFTER INSERT OR UPDATE ON table_a FOR EACH ROW
EXECUTE PROCEDURE table_b_upate();


Now, the time to insert new data into table_a grows incrementally.  The file footprint of table_b grows steadily.  

I have used RAISE NOTICE commands in the function to confirm that the If statement causes an UPDATE and not an INSERT after the first call per key.  

Since the table_a insert time grows for each INSERT, I tried a VACUUM FULL on table_b.  The table_a insert time was reduced considerably.  The file size for table_b was reduced considerably.  After the VACUUM FULL the table_a insert time started to grow again.  I don't want to do a VACUUM FULL after every INSERT into table_a though.  

Is it possible that the UPDATE is actually doing a DELETE and INSERT in table_b?
PostgreSQL doesn't really do updates, it does the equivalent to delete and insert in terms of how it does them.  It leaves the old version of the row in place and creates a new version that all future transactions will see.  Eventually vacuum reclaims the old row space for reuse.  A word of advice, update immediately to a supported release. 7.4 is VERY old, is no longer supported, and has known data eating bugs that will never be fixed.  I'd recommend going right to 9.0, and researching the issues with removed implicit casts which will be the biggest problem.  We had to fix three queries in out app when we went to 8.3 the first version to remove implicit casts.