I currently have an environment with Windows 7 and a GPO in place where automatic updates are completely disabled and can't be installed. I would like to have it set where the updates are only downloaded from my SUS server. I know I can have it pointed to the SUS servername but wasn't sure if that was all I had to do. Is there a way to have these 2 GPO's co exisit?
Yes, you can have two contradictory GPOs applied to the same object. But, ultimately, one will win out, and end up having its settings apply to the object in question. (To be technical, they'll both get applied, but one will overwrite the settings of the other.) More common and better approaches are to change where the GPOs are linked, use Security filtering or block inheritance to prevent multiple GPOs from affecting the same setting on a client.
As far as configuring a GPO for Windows updates, here's the technet guide. It's even got a section on how to point clients at your internal WSUS server.