Which bios version - Windows or DOS - to use for updating?  

There is no one-sided coin :). As always, be it bios updates, firmware updates, registry cleaners/optimizers, defragmenters, keeping your electronics on/standby 24X7 or switching these off when not in use, there are always protagonists and antagonists. With whom one identifies himself is one's choice.

Having said that, for any one interested in Bios updates here is an excellent article Demystifying BIOS updates - The DOs and DO NOTs | ZDNet.

I would just highlight this from the article. (when to update)

"When there’s a darn good reason for doing the update (as a rule I find that if I buy a cutting-edge board then there can be a lot of BIOS updates released over a short period of time, and many of these can be critical updates - the pain of being at the cutting edge!)"

Italics are my making and goes with my thoughts advocated in an earlier post.

IMO, one-off instances of an update going awry, (where the solution is to go back to the earlier version - provided your system has not been bricked) need not cow down others intent on updating. That is why one saves the present bios before updating.

DeaconFrost said:

To correct a comment smarteyeball said, at least with Dell, the BIOS update is done in DOS as well. The Windows utility just preps the file, asks for confirmation, and then reboots the system to update.

Never flashed a Dell. That's handy to know.

When you run the file in Windows, it pops up a message box confirming model and what version you current have installed (and what version it will be). When you hit OK, the system reboots, updates the BIOS to that new version, and then boots back into Windows.

BIOS Flashing, my rule: DON'T unless you NEED something specific, LISTED on the manufacturer's site in the update notes.
.....Windows flashing wise, end the running of the usual suspects of programs running in the background:

Anything that is actively scanning for changes or uses PC during idle times, including anti-viruses, winpatrol, defrag tools, and similar fare.

Of course don't be watching a DVD on your PC, playing WoW, and/or using your CAD software during this BIOS flashing attempts, either.
(Someone has surely done that...)