>>Ironically, the user of the Windows 7 workstation is the administrator,
Unfortunately being an administrator is different from running as administrator. See
http://en.wikipedia.org/wiki/User_Account_Control"In other words, a user account may have administrator privileges assigned to it, but applications that the user runs do not inherit those privileges unless they are approved beforehand or the user explicitly authorizes it."
IME you have to alter the manifest to explicitly escalate privileges, call your updating exe a name that causes Win7 to escalate regardless, or use some other mechanism to escalate. As I understand it, the only difference for an administrator is that optionally you don't have to enter a password or even see the escalation dialog at all, but escalation still has to take place.
"... They ne'er cared for us
yet: suffer us to famish, and their store-houses
crammed with grain; make edicts for usury, to
support usurers; repeal daily any wholesome act
established against the rich, and provide more
piercing statutes daily, to chain up and restrain
the poor. If the wars eat us not up, they will; and
there's all the love they bear us."
-- Shakespeare: Coriolanus, Act 1, scene 1