"Warning: unknown rules activated (versionbit 2)". Probably something to do with taproot. So before I upgrade Bitcoin Core, just wanted to make sure Armory is compatible.
Your assumption is fully correct. Don't pay attention to this message. By and large, 0.96.5 Armory continues to work properly with P2PKH and P2SH addresses. AFAIK, support for both Bech32 and P2TR is planned to be added in the next release of Armory which is expected to see light by the end of this year.