The free Windows 8.1 upgrade is not an update and does not come from the normal update tool.
It comes (
and is turned off) from the Microsoft store app.
1. open your store from the metro screen then press [windows key] + [c] to show the charm bar.
2. Pick "settings"... you will not get the store settings unless you already had the store open in the background.
3. you can turn off the nag ware from the "premissions" setting but the "app updates" is where you tell it not to download on it's own... the default setting is to autodownload.
Turning it off will stop in downloading again by itself BUT if you set it to off on a machine then you can still tell it to download anytime later if you change...