In XP I simply set updates to "Download updates for me automatically, but let me choose when to install them." That way I'm notified when updates are ready to install, by the yellow shield on the taskbar, but the computer will not install them or reboot until I tell it to.
I agree with kchriste. This is the way Ubuntu (and many other non-MS) OSes work by default and IMHO it's much better, both for newbies and longtime users. This is important to power users because they know what to do with the information, but I feel it's also important to newbies since while they can (and often do) just hit "Update Now", at least it educates them a bit as to what's going on. Besides, a buggy or blown OS update can be truly frightening for the newbie.
So if this is the case, then what's the difference is between a blown automatic update and a blown update where you just pressed "OK" to make it happen? In my opinion the difference is that if you do it manually, you at least know that the update happened and could well be the cause of any new trouble which starts afterward. With automatic updates, you might not even be aware that your machine is updating itself, and you could wind up barking up a lot of wrong trees looking for the cause of the problem. The newbie may not be able to use this information directly but it's at least something to give his local guru to work with.
Fully automatic system updates are not, in my opinion, a good idea.
I don't dislike automatically updating some other kinds of software, though--I think it's a mistake to try to make a blanket statement about "updates", as if they were all the same and had the same implications. A blown antivirus signature dictionary update doesn't have nearly the potential to make your life miserable as a blown OS update does.
For some kinds of non-system software (antivirus, some user apps, etc) I quite like automatic updates. I don't use MS OSes anymore so I don't use antivirus, but I started on DOS 3.3* and Slackware 1.<mumble> and used MS OSes alongside Linux until Vista finally made me throw my hands up in disgust. Updating f-prot on my Win 3.11 machines used to involve downloading the update at university and bringing it home on a diskette. When automatic virus dictionary updates became realistic, I was thrilled.
Torben
*-If you don't count farting around with the Timex Sinclair and my old TRS-80 when I was a kid and using the Apple IIe in grade school.)