Microsoft will be releasing a small Windows Phone 7 update on 22nd January. This is to prepare the handsets to receive the first actual OS update coming later.

This update is just to prepare the device to receive the first large OS update coming in March. Users will receive a message in their handset to advise an update is available.

The update comes in two parts: Zune Desktop and Windows Phone update.

First you need to make sure Zune is up to date. You can do this via Windows Update or manually by installing this update http://go.microsoft.com/fwlink/?LinkId=209174. 

After the update Zune Desktop will be version 4.7.1404.0.

To update the handset itself, start Zune Desktop, plug in the Windows Mobile and wait for the update to come down and install.

The mobile device update will come in waves, so it may not show up for you just now, but in a few hours or days. Devices will receive a push notification when the update is available.

Some links:

http://www.microsoft.com/windowsphone/en-us/howto/wp7/basics/phone-updates.aspx
http://support.microsoft.com/kb/2484484
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