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The 'folders' you see in Visual Studio are not normal folders/directories. They are just filters on your project. For some project types they map to actual folders (E.g. C#, VB and websites), but for other projects they don't (E.g. C, C++, Setup, Database, ...).
So actually you are just updating the selection of the filter/folder and everything below.
For most tasks you should always update on either the solution, the project level or a single file, as updating a subdirectory without the project referencing the files inside is an operation that can leave you with a broken project. (New files won't be included in your project and old files won't be removed).
AnkhSVN allows you to update the whole directory at once by checking the [X] Recursive checkbox at the bottom of the dialog, but this is currently not the default setting.