Sounds like you have bought the MFD1 version - operates with CD mapping disc only. The later MFD2 version uses a DVD disc. You can't download software for either MFD unit, only the newer RNS510 touchscreen unit, which has a hard drive in place of the disc reader.
You should be able to get a newer version of the CD disc on eBay but make sure it is compatable with your own unit first.
Cass
Hmmm.... Not strictly true. The MFD2 was available from VW in both CD and DVD versions. The CD Versions first appeared with the MKV in 2003 and was superceeded by the DVD version in 2005/2006. Basically exactly the same unit in functionality, it's just that the DVD unit gives maps of all Europe on one disc whereas the CD version is UK only. There are some other small differences such as display modes and speeds, but bascially the same units.
To answer your question, what you need to know id the update forms 2 parts. You can get a newer version of the CD Navigation disc from the likes of Teleatlas, and when the newer disc is inserted, the unit "updates" the map software automatically. However the basic functions of the MFD2 remain. To update the "unit" rather than the map software, you need a firmware upgrade. These were pretty scarce for the CD version, and I thik the latest version was late in 2004. If I recall correctly, you can find out what you firmware is by pressing the "info" button. On the next screen press and hold the 2 buttons with no text next to them (I think Disc Buttons one each side) and you will be taken into a "secret" menu where you can see the software and hardware versions of your headunit.
For more info on the VW Sat NAv systems head over to the excellent VWNavi forums (vwnavi.com).