Setting it to be your default browser will not affect anything; Windows Update works through IE like you said, however, doing so does not remove IE from your system.tonylukac said:
Altho I like firefox, one check box I hate checked is the "make firefox your default browser" when installing it. So many xp users have screwed up their windows update, etc. due to this. I even informed mozilla of this, but no change. It is often difficult to get ie back; different in every version of windows.