Game updates can be obtained in .cia form and installed, so you can update the game without updating the System Version. Online play only requires the latest game update, so you can still play online. Certain games will require newer System Versions installed to be able to run, but as of right now, I believe there are only a couple titles that require anything past 9.5.
The "Average size" depends on the game. Some are 512 MB, some are 2 GB, a few are 4 GB. Some are even smaller, at 128 MB or 256 MB.
My current collection has 38 titles.
4 GB - 2 titles
2 GB - 6 titles
1 GB - 10 titles
512 MB - 4 titles
256 MB - 3 titles
128 MB - 13 titles
So it seems that the "Average" game tends closer to 1 GB. I have a heavy representation of 128 MB titles because I have a preference for "retro" style games, which tend to be smaller. Your average might be different, based on your taste in games.
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