If it's been installed correctly, the .Net 2.0 SP1 update does show up in the Add/Remove Programs without the 'Show Updates' box being checked. It shows as 'Microsoft .NET Framework 2.0 Service Pack 1'.
If it keeps appearing on your Shut-down button, that implies that it hit a snag when it first tried to install itself and that snag is being replicated at each subsequent attempt.
I had this problem earlier this week (with other auto-updates). The solution in my case was to uninstall Norton Corporate Anti-Virus. After letting the shut-down procedure do its thing, all was well. It seems that in nine out of ten cases, an over-aggressive AV program is the root cause of installation problems.
