I'm 99.99999999999999% certain Windows Update isn't it. For one, it uses BITS, which only uses idle bandwidth. Two, it's likely you've turned it off or set the setting to notification only. And three, by default, Windows Update only checks for new updates every 22 hours +/- 30 minutes, unless it has been changed through Group Policy or a Registry setting.
Browsing through a VM is arguably slower due to the fact that it's, well, in a VM.
IMHO, the biggest factor in Internet responsiveness is the router. A good router will do wonders for your browsing experience. When I was little, I've always wondered why Cisco routers sell for so much. I always though, "all it does is bucket brigade a bunch of packets. . ." I'd list your router and model.
I'd also look at getting a router that supports dd-wrt. The QoS protocol may be of some use for responsiveness.