There has never been a free upgrade from 10.5 to 10.6 Snow Leopard, so Software Update is reporting the correct information. Snow Leopard was a $30 upgrade, which you may be able to still get by calling Apple, in the US, at 1-800-MY-APPLE. Ask if it's still available from the legacy products list. Since Mountain Lion was released, it's been pulled off the Apple online store site. Or check Amazon or hardcoremac.com.
You may also want to read this article on the the upgrade from Leopard.