Normally you would just get a whole new tier of items and your current stuff would be trashed. This allows your old exotics to be recommissioned for current tier. I much prefer this than having to go and get all new tier exotics.
Normally gear resets happen once every 2 years or so, not after 3 months.
Normally a gear reset offers upgrades to all items - we know the dark below only has a few new weapons, so the option is either upgrade or don't have any weapon options at max level. Bungie aren't doing us a favour here, they *have* to do this to cover the lack of content.
Oh, and normally upgrading wouldn't be determined by a random selection of gear options on Xur! I think that's one of the craziest bits about this - xur will only have a selection of exotics to upgrade every week, so if it's not on the list you are screwed. Betting Gallahorn and Icebreaker aren't on the list for a long time?
Seriously, more and more these design choices seem to be about papering over a shockingly tiny amount of content with extra grind and forced repetition. The latest patch actually improved things on that front, but these details seem to be a giant step backwards.
(The lack of options around Legendaries is also stupid - it means we will have far fewer weapons at max level than we currently do).