Very interesting question. I am also working on an update application at the moment - I'm using the Microsoft Updater Application Block to allow the application to download updates over http and update itself.
I have designed my application using an Interface-based programming approach to allow me to easily mock implementations to help in unit testing. There's also some very good mocking frameworks available. http://stackoverflow.com/questions/37359/what-c-mocking-framework-to-use
In terms of testing downloading an update, installing it, testing versioning etc. I think a Test Harness might be more appropriate than Unit Tests?