First, take a look at my previous post here where I show that the only files that're updated are those relating to the operation of Automatic Updates itself.

Then, take a look at this blog post by the Update Product Team. There, they say (in its entirety):

There have been some questions raised about how we service the Windows Update components and concerns expressed about software installing silently. I want to clarify the issue so that everyone can better understand why the self-updating of Windows Update acts the way it does.

So first some background: Windows Update is designed to help our consumer and small business customers (customers without an IT staff) keep their systems up-to-date. To do this, Windows Update provides different updating options: 1) Install updates automatically, 2) Download updates but let me choose whether to install them, 3) Check for updates but let me choose whether to download and install them, and 4) Never check for updates. Our goal is to automate the process wherever possible so that we can increase the likelihood of a system being secure and up-to-date, while giving customers the flexibility to control how and whether updates are installed. The reasons for this are both philosophical and practical. Philosophically, Microsoft believes that users should remain in control of their computer experience. Practically, customers have told us that they want to have time to evaluate our updates before they install them. That said, and to the benefit of both customers and the IT ecosystem, most customers choose to automate the updating experience.

So what is happening here? Windows Update is a service that primarily delivers updates to Windows. To ensure on-going service reliability and operation, we must also update and enhance the Windows Update service itself, including its client side software. These upgrades are important if we are to maintain the quality of the service.

Of course, for enterprise customers who use Windows Server Update Services (WSUS) or Systems Management Server (SMS), all updating (including the WU client) is controlled by the network administrator, who has authority over the download and install experience.

One question we have been asked is why do we update the client code for Windows Update automatically if the customer did not opt into automatically installing updates without further notice? The answer is simple: any user who chooses to use Windows Update either expected updates to be installed or to at least be notified that updates were available. Had we failed to update the service automatically, users would not have been able to successfully check for updates and, in turn, users would not have had updates installed automatically or received expected notifications. That result would not only fail to meet customer expectations but even worse, that result would lead users to believe that they were secure even though there was no installation and/or notification of upgrades. To avoid creating such a false impression, the Windows Update client is configured to automatically check for updates anytime a system uses the WU service, independent of the selected settings for handling updates (for example, “check for updates but let me choose whether to download or install them”). This has been the case since we introduced the automatic update feature in Windows XP. In fact, WU has auto-updated itself many times in the past.

The point of this explanation is not to suggest that we were as transparent as we could have been; to the contrary, people have told us that we should have been clearer on how Windows Update behaves when it updates itself. This is helpful and important feedback, and we are now looking at the best way to clarify WU’s behavior to customers so that they can more clearly understand how WU works. At the same time, however, we wanted to explain the rationale for the product’s behavior so our customers know what the service is doing: WU updates itself to make sure it continues to work properly. We are also confident that the choice to use Automatic Updating continues to be the right choice.

Before closing, I would like to address another misconception that I have seen publically reported. WU does not automatically update itself when Automatic Updates is turned off, this only happens when the customer is using WU to automatically install upgrades or to be notified of updates.

Providing and maintaining the WU service is important to enable us to service our customers and help them maintain safe, more secure and reliable computers. We take this responsibility very seriously and we are proud of the impact that Windows Update has had to help users with safety security and reliability over the years. Updating the client has been and remains a critical piece to this approach.

We appreciate the feedback and I hope that this post helps you to understand the situation and our strategy.

Nate Clinton
Program Manager
Windows Update

Your thoughts on this whole story? Admittedly, this is more the PR nightmare than any real concern to system stability. To be honest, I find the angry comments added to the bottom of the post to be quite humorous.

This was taken from:
http://blogs.technet.com/mu/archive/2007/09/13/how-windows-update-keeps-itself-up-to-date.aspx