(I've always wondered why...)
...Windows always employs a "you don't need to know what you're getting" attitude with its updates. By default, updates are set to be automatic, in the name of "protecting your computer from exploits" (I call this Level 3 automatic updates).

With Level 3, everything is automatic. Windows automatically downloads and installs the updates, and then turns off your computer in 5 minutes if you don't postpone it. This is the most annyoing level, in my opinion.

I set it to Level 2 (download, but don't install yet) myself. This level strikes a good balance, because I can review what I'm getting, and then install it. (I always install all the updates anyway; I just want to know what I'm installing.) Sometimes, an important update is marked with "Once installed, it cannot be removed". These updates, I actually check on the Microsoft KB to see what I'm getting myself into. Also, if the download is finished, it does not automatically turn off in 5 minutes, so if I have to go away for anything, I don't have to worry about losing my work, just getting a pop-up window that I can postpone for about 4 hours. I recommend people set their automatic updates to this level.

If you set it to Level 1, the download will take time if you're accessing the Internet. I don't really like this, because at level 2, the downloading of the update is a background process, which means that it gets lower priority than most other processes that access the Internet. At level 1, the downloading is a foreground process.

Level 0 (do not check, download, or install updates) is the least safe, and I would not recommend anyone set their updates to this level (nor would Microsoft).

On Level 2, though, there are two options to install the upates: Express and Custom. For some reason, Express is always recommended. It seems that Microsoft would rather let you not know what they are doing. What if they're providing the FBI/NSA with backdoors to every computer? That would be an outrage.

(Maybe this should have gone into The Vent, but I just decided to put it here.)

I strongly recommend people put their Windows automatic updates to Level 2 and check what they're updating.

I personally much prefer Level 1 (as you labeled it) because I absolutely will not install every update Micro$oft tries to forcefeed me. For example, I'm very computer literate and am able to protect myself from malware; I don't need Micro$oft's program, which may be sending information about my system abroad for all I know. Even if it isn't, it's still a waste of the time to download it, the space to store it, and the time and resources to run it. I don't install updates that are a few MB's just to tell me that my copy of XP is legitimate. I also do not want to install Internet Explorer 7 because I don't want to waste away HDD space and risk another Micro$oft program installation when I use Mozilla Firefox exclusively. I'm not one of those that will update all of my programs merely because a newer version is available, regardless of whether I like the company / individual or not. For example, on most of my computers I still use Firefox 1.5 because there are quite a few settings I prefer and a few extensions I use which are incompatible with Firefox 2. Once I start visiting websites that tell me they require Firefox 2, maybe I'll consider updating the remainder of my computers (my laptop is using Firefox 2), but until then, I'll stick with my preferred versions of programs. I can make my own choices as to if I want to update, be it my Operating System, my web browser, or my text editor.