Updates you see in Software Update are free, and are recommended for your system. They should be installed.
An upgrade to a new version of the OS (like 10.6) is a paid update and doesn't appear in Software Update since it's not mandatory. If you have an Intel Mac, I would recommend calling Apple and ordering a copy of Snow Leopard even if you are not planning on installing it immediately.
Once you get the DVD from Apple ($30+shipping), you should make sure your third-party apps are up-to-date, and perhaps look at upgrading the RAM in your machine (generally pretty cheap to do). Then I'd suggest installing Snow Leopard, and updating it to 10.6.8 (the last version of Snow Leopard).
If your machine is old enough that it came with Leopard, I'd probably suggest that you stop there and NOT update to Lion or Mountain Lion, but just plan on buying a newer Mac in the next couple of years.