We don't test the AutomaticUpdater in Expression Blend -- so it may or may not work. Does everything work when you open the design in Visual Studio? Are you adding the AutomaticUpdater to a Window (and not something else like a Panel)?
Also, are you using the correct AutomaitcUpdater WPF control? We have one for .NET 2.0, 3.0, and 3.5 and one for .NET 4.0.