Beware that PATH being unset or empty is a special case and does not necessarily mean that no directories are searched. Different shells handle it differently, and other utilities spawned by the shells handle it themselves in a way that may or may not match the shell. Whether setting PATH to $dir if it was previously unset or empty is the right thing to do is therefore a matter of opinion. Personally, I would stay out of that mess and either issue an error or leave PATH unmodified.
That's what the extra :s in ":$PATH:" are for: they prepend and append an empty component to the list. Any component in the original "$PATH" will still be in ":$PATH:" too, but no longer be at the end or the beginning, allowing the pattern to be simplified.
The first case is hit when the PATH contained the directory already (no-op); the second case prepends the new directory to the PATH.