I can't find it now, but some time ago I saw a thread or two on this forum that suggested that Ubuntu 6.06 updates weren't working right and were actually "hosing" users' installations. (I really wish I could find the threads again-- this news really rattled my cage, being that I had recently set up my company on a 6.06 file/print server).

Anyway, my question is: are folks still having update problems out there, or have the Ubuntu folks cleaned it all up by now? I've avoided updating my server ever since I first heard of this.

Or did I just hallucinate the whole thing ?

No - that problem occurred a couple months ago where an X11 update actually trashed the GUI - major oopps. Anyway, the problem was fixed within a couple hours but not before it bit quite a few people - yours truly included.
Updates have been working fine since that time - no worries