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The IDS delivers software updates in a few ways depending on the scope of the update. Sometimes it is a single file or files untarred to replace specific files. Somtimes it's a file system image, sometimes it's a custom installer with scripts to update the boot loader and/or kernel. But in every case, you'll need to download the updates via the IDS connection on your iLiad. You choose when to initiate the update, so you could choose to never update the software if you like. But it's probably best if you let IDS perform the update if you want it.
The OS is pretty open, you can do whatever you like with it. If you want it to boot and only launch a terminal, you can do that (although, I don't know what you'd gain...).
Short of building a new user interface from scratch, using what's provided by iRex is the best choice as of now. I think things will make a lot more sense when you get your iLiad and start tinkering with it.
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