How are you handling the LinkButton click event? Is the FormView you are trying to change the view mode contained inside the RadAjaxPanel of the LinkButton control or is it not contained in a RadAjaxPanel?
If the FormView is outside of the LinkButton's RadAjaxPanel and not contained in another RadAjaxPanel then I can understand why it doesn't update. All controls that need to be ajaxified need to be inside a RadAjaxPanel.