I think the rules are quite clear as to when a Condition is applied. It's the player herself who decides what Condition to apply. It makes no difference mechanics-wise (all Conditions have the same effect), but it affects the story.
In a way, you could say that all PCs have 4 "hit points", but each hit point has a little different flavor.
It's not too bad once the old terms are taken out. But from p 51-52 I get the distinct impression that the GM decides when to threaten with a condition, and that this is a specific condition. But on p. 47 it seems it is indeed the player that would make the choice ... On p. 54, it is quite clear that the player chooses a condition when the trouble is forced. It is for the first instance (p. 51-52) I would prefer more guidance. But I am quite certain that an update of the examples on p. 52 would be sufficient.
Otherwise I am impressed by how well you have caught the mood and themes in Stålenhag's books in the game, both the setting, the principles (oh, I really love those!), and the system.
I like the way that Problem, Drive and Pride are important expressions of your character, on par with attributes and skills. Therefore I think it is acceptable that the choice of Type has no more mechanical impact than your Key attribute. But I may change my mind after playtesting,
Overall a great effort with a very promising outlook at the alpha stage. Can't wait for the finished product to introduce my kids to the glorious 80-ies!