This last time I only tried the manual upgrade from the website. However in the past it's happened both manual and auto-updating through the game. I only have one version installed (I removed Beta after that version went live).
The patches between versions are hit and miss. Some of them install, some of them gave me the error. My install directory is NOT the new default path that was used beginning in the version with the new terrain. It's on a different drive (D:\ partition) and under the older Aces High II folder. However as I said, some of the intermediate patches worked and some didn't.