I followed the following steps
Yes the exploded directory ought to be updated, however you don't need to stop Tomcat for this to work - it will work with Tomcat running. Can you try it again without stopping Tomcat in between the update?
Also I use the built-in Manager application which allows me to update war files anywhere in the domain without being root (or apache or whatever tomcat is running as). This is very convenient and can be built into an Ant script.