It's only automatic app download (new purchases) - provided the app is 20MB at most while on 3G, no cap while on Wi-Fi including hopping on to other iPhone's personal hotspot.
Automatic app update isn't necessarily good,
There are instances where updated versions crash, have removed functionality, worse off, bug issues etc, compatibility issues, profile data loss etc - this is on the bad side, it does happen ocassionally where things go the opposite direction of what the release notes say.
For free apps, you don't know if sometimes the developer feel that giving apps free is really too good a deal and start adding ads etc..
Its better to read the update release notes and probably the reviews on the current version as well,
if you see a noticably large bunch of bad review like "after a game app updates, my character gets reset!!!@@" - don't update it until the developers rectify the issue.
"nooooo my news app doesn't fetch news anymore!!! *1star*" (99/100 people found this review helpful) - Like the above, don't get it.
There are issues which may not crop up during tests ran by the developers, they're just a couple of people while the consumers are a larger bunch of "testers"
However to note, if you were to see people specifically mentioning
"the update/app crashes only when I'm on an iPod Touch or iPad1!@!@!@" - especially games
And no issues with iPhone 4/4S iPad2 etc, chances are you're safe. That's because iPod touch has an underclocked processor and scaled down specs, like the iPad which may be the cause of the issues.
Hope it helps.