Lynda, I'm no expert but my understanding is that UAC does not want apps silently updating themselves or each other without admin privileges, period. I believe that admin privs may not be needed if the exe is installed in a user-specific folder such as %appdata%, but I have no experience of that. I'm also told that if your app includes a service with admin privileges, the service will be able to quietly update stuff, which is how virus scanners and the like do it.

We use the program files hierarchy and supply an updater app whose manifest requires privileges escalation. Actually if an exe is labeled "update.exe" I believe that Win7 always will require admin escalation, so all your main app would need to do is call update.exe and then terminate itself immediately so it can be overwritten.