Very interesting question. I am also working on an update application at the moment - I use the Microsoft Updater application block so that the application can download updates via http and the update itself.
I developed my application using an interface-based approach so that I can easily simulate implementations to help in unit testing. They also have very nice fake frames. https://stackoverflow.com/questions/37359/what-c-mocking-framework-to-use
From the point of view of testing the download of the update, its installation, version testing, etc. I think test wiring might be more appropriate than device tests?
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