I currently have 4 drives on my Series X: the internal 1 TB, a 1 TB expansion card, a 1 TB SSD and a 4 TB non-SSD. Series stuff is on the internal and card, non-Series is on the SSD and stuff I'm not planning to play anytime soon is on the 4 TB.
A couple weeks ago, there was an update for MS Flight Simulator. That's on the expansion card, and the system did a full download of the game. The card only had a few GBs free, so I thought it might've been because there wasn't enough space on the card for the update, but if the update was replacing enough files, there might've been enough room on the card for a fresh download. After it finished, there was under 100 MB free on the card. Considered asking here if anyone might've noticed their system doing a full redownload instead of an update when their drive was nearly full.
Then came an update of a few GBs for Sea of Thieves, which is also on the card. The system wouldn't download it, I needed to free up some space. Shifted something to the 4 TB and the update downloaded.
Today, there was a 29 GB update for Avengers, which is also on the card. There was ~2 GB free on the card, 16 on the internal, 9 on the SSD and 192 on the 4 TB. The update downloaded without issue.
I've always assumed (dangerous as that can be) that updates were fully downloaded to the same location as the game and then applied. Is that not the case? Can updates download to wherever there's room? Avengers is 166.2 GB after the update, not sure if that changed.