When you should update somewhat depends on your personal situation, e.g. are you running a personal firewall, are you behind a firewall, or are you directly connected to the net? That said, my advice, is generally to apply security updates as soon as you can after they are released to Windows update. The initial release usually isn't on Windows update for a few days, if there are any uncaught problems with the patch, thats usually when they are found and posted to MS/NtBugTraq/etc. By the time they get to Windows Update a good number of users have already installed them.
My 2 cents, your mileage will vary.
Bill