This topic has good and valid arguments on both sides. Some would say keeping your windows up to date is essential in keeping it free of the newest, worst viruses and the like. Others would say that updating your windows overemphasized, unneeded and a waste of time.
In the future, Microsoft will have ways of detecting whether your version of windows is actually store-bought, or pirated. With so many copies of pirated windows on the market, such a move by Microsoft is almost required in order to continue cornering the OS market. For instance, when SP 1 (and 2) came out, you had to have an authentic windows serial code in order to download the update. There are of course ways of getting around this, but it deterred much illegal upgrading to the new service packs. Had you have had a pirated copy of windows (and the majority does), then you could have downloaded a copy of windows SP 1/2, but you would have had to completely re-install and possibly format in order to install it.
If you had an original windows serial code that came with the product, you could have just downloaded the packs from the windows update servers.
So yes, having a non-pirated copy of windows is a convenience. However, some would remember a stunning virus that was released not too long ago; MyDoom. It managed to find its ways onto the Microsoft windows update servers. When you got the virus, you would have 30 seconds before the computer shut down. Should you have formatted, just to re-install windows with automatic updates turned on (and they are by default) you would get the virus again.
And not to mention Windows Updates are a large time factor. Some updates (especially the first time you use Windows Update) are colossal, and the download speeds are not always at their greatest. Someone on 56k would have a very hard time using windows update at all (and if you do, I recommend not bothering).
Now, you ask, what exactly is Windows Update? It's simply Microsoft engineers working hard to fix bugs, problems and backdoors in Windows. What are these problems, you ask? Well, when Microsoft released windows it wasn't exactly a perfect OS. With every version of Windows, it becomes more and more hi-tech. But there has always been problem with Windows being insecure.
The only way to find that Windows has certain vulnerability is first for that vulnerability to be exploited. Eg, Microsoft using white hat hackers (the good guys) to breach windows, or for a hacker to break into a version of Windows and it is reported.
So, to answer the question, is it important to update your windows? It's hard to say, without the answer being a biased opinion. I will give both sides of the argument merit, but it honestly depends on what you want to do with your PC. For large businesses with intranets, windows updates are likely a good idea. It only takes one serious OS fault for a hacker or a bad virus to leak in and infect the whole network. Windows faults and security issues, IE backdoors, etc. Windows update constantly has fixes for these problems.
For a home desktop, even for a home network, windows updates really aren't that important. No one wants to hack the small guy; there is nothing to gain from it. Should you use a simple firewall, even the windows in-house firewall, you are protected from most threats. But big business is always at risk; major websites are constantly under the gun from DoS attacks and IE "tricks." Windows Updates cannot really help DoS attacks, but they can prevent hackers, crackers, viruses and the like from entering their network computers from faults in the windows code.
So to answer the question - should I use windows update? If you've got a lot of infrastructure you want to protect, yes. If you're a small guy, one PC at home, one laptop; even a few computers thrown together in your home network. The answer is no. I don't recommend it, anyway. Just throw on your windows firewall, Black Ice Defender, Norton, Avast....what have you. And enjoy browsing. That's about it