Whenever a new update to software is released for Windows Phone 7, you can update your phone as well to the new version. When a software update for your phone is available, you’ll get a notification. Apart from the notification, you can also manually check and update the software on Windows Phone 7.

Steps to Update the Phone Software;

• On Start, flick left to the App list and tap Settings.

• Then tap Phone update and you can see any updates available for your phone.

• If an update is available, and you want to learn more and install it on your phone, connect your phone to your computer using the USB cable that came with your phone.
• On your computer, run the Zune software if it doesn’t start automatically, and then, in the Zune software, select Settings > Phone > Update.

Important Note: You need to have Zune installed on your PC or else you will be prompted to install before you can update your Phone.