Since late last month, Microsoft is rolling-out its first Windows Phone 7 update and after some earlier problems, it seems to work stable now and the pre-NoDo updates finally hit my devices as well. Every Windows Phone 7 is communicating with Microsoft's Windows Phone update server and checks if a new device/firmware update is available or not. This works similar to Windows' update mechanism but in this case, the device reports a device ID and carrier-branding combination to the server and the server decides if an update is available or not. As soon as a firmware update is available, the server notifies the device and suggests to update the Windows Phone 7 via side-loading, using a PC or Mac.
The following 8 minutes video shows the whole process and isn't edited or shortened in any way but the update only took 8 minutes.
Since Microsoft's Windows Phone 7 update itself isn't done over the air (OTA) but is always done through a PC or Mac, as soon as the device is connected to the PC, the Zune Player kicks-in and also checks if an update is available; connecting the same update server as the Windows Phone. After confirming that the update should be performed, everything goes automatically and the user hasn't have to do anything anymore until the Zune Player and the device reports that update was done successfully.
Cheers ~ Arne