In the days of firmware 1.x (I'm quite sure this still applies, though), the update button in iTunes would merely cover up the jailbreak (Cydia and WinterBoard would be out of sight), but they wouldn't be deleted. (Read: Traces are left behind.) Unfortunately, iPhone/iPod touch backups from a jailbroken device can also contain remnants of the jailbreak (i.e.- customized carrier name, preferences for WinterBoard).
Bottom line: I'd suggest performing a restore if you want the jailbreak completely eliminated.