I am trying to update a column inside of a table variable based on a condition, the condition being that the ID of the table variable does not exist in a different table:
Here's a version of the previous two using aliases to get around your issue:
UPDATE @BugRep SET IsValid = 'N' FROM @BugRep BR LEFT JOIN BUG B ON BR.BUGCode = B.CODE WHERE B.CODE is null
This also avoids the inefficiencies related to "is not null" and "not exists".