We are thinking about the deployment and update strategy for a fairly large framework throughout our organization. The application will be in .NET 3.5 and will run on Windows XP
I have worked on a project that uses BITS and ClickOnce but not in the same context as what you want. ClickOnce was the mechanism for downloading the application which was very light, as light as it could be made. Then using a combination of Microsoft Synchronization services and BITS to synchronize data and pull down artifacts (around 2 GB).
Remember with ClickOnce you do not need to force the user to upgrade before opening. You have the ability to upgrade the application whilst the application is in use and then the next time the application is started the new version will be run.