According to the instructions on B&N site, you just place the .zip file in the root of the SD card and put it to sleep and walk away and it will update it and then reboot itself. It didn't work for me the first time, so I downloaded it again and copied it over to my SD card put to sleep and in a few minutes it rebooted and all was done. I think it will probably break your root though.
You need to place it on the root of internal storage not the sd card. Once updated, you will loose root so you will need to use autonooter 3.0 to re-root. You place items used for ClockworkMod recovery on the root of your sd card, items such as customer roms, themes, keyboards, kernels. B&N update zips need to be placed on root of internal storage only.
I'm currently at 1.01.
When I connect my NC via USB to my computer (running Win7) in my computer group I see two removable HDs; I assume one for the NC and one for the SD Card. However the upon clicking I am prompted to insert media. In the device manager it recognizes an android phone, under which I can see an "Android Composite ADB Interface.
Because I can no longer see the nook I resulted to moving files via wifi (Samba) but it seems I can only get to the SDCard.