What effect will GP’s have if user is logged on locally? *(WSUS Problem)

I run a small office’s network consisting of about 8 local users. I have a WINS2k3 domain set up, but because of complications w/ our database program we use, most of the users log on locally. I was wondering how if at all this affects group policy settings. My problem now is that Ive set a GP for automatic updates. It may be that Im missing something in the set up but Ive set a GP directing the pcs to go to http://localserver:8530 for updates (set it yesterday) and when i go into the WSUS console it still shows 0 PC’s being managed. Any ideas? Comments on on either GP or WSUS will be appreciated.