No truth at all...in fact not updating your system leaves you wide open to security flaws in Windows.
However, occasionally you may install an update that could conflict with existing software and hardware and that can cause temporary problems but they're easy to uninstall so it's not usually a major problem.
Space wise, the files Windows Updates are downloaded and stored on the hard drive...these can be deleted in C:\WINDOWS\SoftwareDistribution\Download (do not delete the folder) without a problem and also the uninstaller files can be deleted if you are really short for space but it's advisible to back the folders up to a disc beforehand as you will not be able to uninstall the updates without them. Though if hard drive space is that much of an issue, new storage is pretty cheap these days so that can be fixed too.
Just to re-iterate....your system may not be secure without the latest patches and hotfixes from Microsoft. Some people spend their entire lives looking for holes in Operating Systems and Microsoft are kind enough to try and fill those holes for us in the form of updates (it's not often that i'm over thankful to Microsoft but Windows Updates is an idea i'm grateful for!)
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