pretty sure its stored in the nand....only sure fire way to remove it is a system formatyou would have to get rid of the update first... a system format is the first thing, that comes to mind, but you would have to backup your saves first
I heard a few times, you can also just delete the download folder of the update from the SD, don't know, if that's true though and which folder that would be
maybe someone else can shed some light on that? gamesquest1 for example?