The automatic updates will presumably be delivered over the Internet when a user connects to a WiFi access point, though it is unclear if players will then have the choice to decline an upgrade.
Nintendo will also be able put firmware updates on game carts, which would most likely require updating to play, similar to how the Wii, DSi, and Sony's PSP function.
I'm all for Nintendo adding new features to the 3DS after release, but I also hate having to update my consoles frequently in order to play new games. Hopefully, the updates will not be too frequent.
The 3DS will be released in late February in Japan and retail for around $300. Pricing and date have not been revealed for other territories at this time.