Is there a way to let it install updates when it says "Installing updates" here? Some folder on the dvd where the msu files can be placed in? Or is this only for when you start the setup from a running windows install and tell it to download the latest updates?
arrr! I am not sure I understood that the way you meant it, but I ll give it go anyway Windows requires you to integrate updates (i.e. DISM) in order to include them during installation (of Windows). It's only with Office that you can place updates in a designated folder for them to be picked up during install. And that has certain limitations too i.e. you can extract the contents of SP1 into that folder, but for any post-SP1 updates you still need to install manually...
It's like the office way that I mean. At the installing updates stage it's still winpe that's running. In theory dism could then run and integrate updates in some updates folder into the files that are extracted to the dvd at the expanding files stage, just like it integrates them into the files of a mounted wim. The result would be exactly the same as if it was installed using an integrated wim, only the install takes a little longer. MS just needed to support it, which is easy. I think it was even possible with the pre-release version of vista or 7. OK it is a little different than the office way because this is real dism integration and office uses normal update install.