it updates avatars and kinetic and things, but for some reason if you don't have it this error occurs and maybe more errors, its best to have it.
try going to xbox.com/update and scroll down until you see "Copy to a USB flash drive" and then download the update file listed below
do not do this if your rgh/jtag is lower than 16202.
unzip the archive and place the $systemupdate folder on the root of a fat32 USB. go to system settings and plug in the usb now a prompt should pop up asking you to update click yes yes.
if the prompt does not come up change the folder name to $$ystemupdate and try again.