Few things can be more irritating than launching an application and being greeted with a “update available” dialog box. There’s a new version out? Great. Now get out of my face and let me do some work, please.
Update notifications should be informative, not annoying, and should definitely not stand in the way of using the application. Clicking a “Cancel” button may seem like a small motion, but it’s an unnecessary step between you and getting something done.
Instead, let me know there’s an update available in a discreet way, somewhere in the interface. Windows 7′s Windows Update does this using tray “baloon” notifications. The Mac OS X App Store uses numbered badges, as does the iOS App Store.
TL;DR: Software update prompts are annoying. Don’t ask, inform. I’ll update when, or if, I choose to update.