one of the reasons for having IE Enhanced Security Configuration on a Windows server is that one should NOT browse the internet with a server. It's a high security risk.
To go to Windows update, click start, programs, and at the top of the programs window you'll see "Windows Update". Click that. IE will open and request to add Windows Update to trusted Web sites. CLick ok. You'll have to go through this process a couple of times as you add the different web URLs for Windows Update to the trusted sites in IE.
another more preferable method is to visit Windows update and download Windows server 2003 SP1 on a computer that has internet access and burn the update to a CD. then install it on the server.
The best way to do all this is install and run Window Software Update Service. WSUS runs on your system and downloads all updates. Then you can approve and deploy updates needed network wide.