If you are referring to the update cache here: C:\Windows\SoftwareDistribution
If it has grown very large, then yes, you can delete it by stopping the Windows Automatic Updates service and then delete the folder and restarting the Windows Automatic Updates service.
It's definitely not best practice, since it deletes the cache and install history and upon the next check of updates will have to catalog everything again to see what is and isn't installed, but sometimes the folder does get bloated beyond what it should.
But beware that it might quickly balloon again and is really a stop-gap so that you can get true free space on the server somehow (additional storage, new drives, etc.).
An example KB article somewhat alludes to this after you "fix" this folder but the same concept applies for just freeing up disk space in general (only if it is really bloated): http://support.microsoft.com/kb/2509997
Note If the issue is resolved and you can successfully download and
install updates, you can safely delete the SoftwareDistribution.old
folder to recover disk space.