Here's my thoughts on the redesign:
1. When thinking about redesigning the gallery, think about the things that it doesn't do, the people who's stories it doesn't tell, and try to reach out to those people and see what needs it doesn't address. What matters here is having an open mind and trying to understand what these communities need. You don't have to follow all their suggestions, and no one exhibit can be all things to all people, but you need to understand everyone's point of view first before you go any farther.
2. Consider accessibility & viewing height of displays especially from the perspective of children. This is something I learned from the Miyazaki Museum in Japan, which is one of the few museums built with children primarily in mind: make it so that they can see things more easily. Making viewing more accessible to people in wheelchairs is another good idea, not just for disabled but also aged Museum goers. It's hard to appreciate things when you have to crane your neck... and the ADA might have not yet been a thing, or at least been a very new thing and thus poorly thought out, when the gallery was designed.
3. Hands on activities are very good for kids, and just generally good museum design practice. I would definitely recommend adding something here. One thought, based on what you have said about having duplicate weapons, is designing a stand which allows a visitor to lift the weapon, and feel its weight. The US Army Museum in Carlisle had displays like this that were very effective (the only Infantry weapons I could lift when I visited where the M1860 Springfield and the M-16!), you could try reaching out to them on how they constructed them. The idea of letting the kids role play a bit with repro equipment is also a solid idea.
4. The diorama: I can see where Petersburg, being not in Michigan, would kind of cause a hiccup in the narrative. I'm not sure if there were any Michigan units involved (though I imagine they were)? The war wasn't fought in Michigan, though, so at least some kind of larger context ought to be provided. I would consider what battle the museum would like to focus on that Michigan played a significant role in, and consider reusing the elements of the existing diorama to depict that.
I loved models and dioramas as a kid, and still do now. If it's drawing the crowds it's probably because: 1. It's more compelling than the rest of the gallery, because it humanizes the war in a way guns hung on a wall don't. and A. It's the only thing in the gallery they can look at that's at kid height.
5. If the diorama is unsalvageable, I'd suggest one of two kinds of replacements: Either consider integrating a digital element to the gallery or maybe try and build a place where the kids could wargame? I think you could actually combine these two ideas, possibly there is a commercial product that might allow you to do it.
I feel like a more abstracted and tangible experience might be a good idea for the younger audience you are going after. Something as simple as rules for moving wooden blocks representing Michigan units and their opponents around the field and resolving combat (this could be resolved by simple die rolls and a results table, and something like a "move one square per turn for Infantry and two for cavalry" rule) would be low tech but very effective.
Generally though, trying to get something technological and digital going is a good idea, albeit expensive. VR in particular allows for some pretty immersive experiences, ditto augmented reality.
6. The Curriculum: its a good starting point but I wouldn't chain myself to it. It's bound to get revised at some point in the future and that will make the exhibition quite dated. Also, school curriculums tend to destroy any semblance of the nuisance and scope of history. I didn't learn about the Stonewall riots until Grad School, I'm ashamed to say, in spite of them being a pivotal part of American history. Most of the North's racist pre & especially post Civil War past gets ignored by schools but is very much part of many people's lives to this day. Even positive things like the stories of free black peoples in the North & West get excluded. Nowadays school curricula have more to do with hitting test goals than education, which is why trips to the museum are important: they provide for learning different things in different ways than are possible in a classroom setting. And that can be life changing!
7. I think focusing on the race riot in Detroit is an excellent idea and should be a centerpiece of the new exhibition. It's complicated stories like that which need to be told, because they make people think critically about things.