dwusplay.dll is an activeX control that we call our Player. It does the downloads and launches the install after the download. If a user cannot write to the [downloaded program files] folder, the user must not have have rights to install any activeX control (like Flash).
The good news is that if you are using the Update Service full (Web) UI, you can live without the player. The downgraded experience is that the customer won't have access to the "Install" button. Rather, they will be forced to download the EXE and run it manually. However, the user can still see the list of available updates.
The other feature of the Update Service that uses a activeX control is conditional messages. An activeX control is used to evaluate if the conditions are true/false. Right now we do not have a downgraded experience for this. All conditions will evaluate false. We are working a seperate (but equal) UI for customers who cannot use activeX controls.
