In XP, I think updates notified with a tray icon (depending on update settings) when updates were available for download, and when updates had been downloaded and were ready to install.
In Vista (x86 ult) I hardly ever see a tray notification for updates. Only sometimes.
Usually I see only the 'install updates and shutdown' overlay on the start menu.
I'm currently set to 'download but let me choose whether to install', my preferred option is 'check but let me choose when etc'.
The 'Hide inactive icons' taskbar setting is disabled.
No idea why I'm not getting the tray notification.