I think you might have a registry problem.
Disclaimer: It's no secret what registry keys the game uses so I don't think I'm revealing any prohibited info here.
These are some of the registry keys you should have for BS2:
My path happens to be "K:\Games\2K Games\BioShock 2\", your path will likely be different. Something like "C:\Program Files\2K Games\BioShock 2\" or "C:\Program Files (x86)\2K Games\BioShock 2\".
[HKEY_LOCAL_MACHINE\SOFTWARE\2K Games\BioShock 2]
"InstallPath" = "K:\Games\2K Games\BioShock 2"
[HKEY_LOCAL_MACHINE\SOFTWARE\2K Games\BioShock 2\1.00.0000]
[HKEY_LOCAL_MACHINE\SOFTWARE\2K Games\BioShock 2\MP]
"InstallPath" = "K:\Games\2K Games\BioShock 2\MP"
"Working" = "K:\Games\2K Games\BioShock 2\MP\Builds\Binaries"
"Launcher" = "K:\Games\2K Games\BioShock 2\MP\Builds\Binaries\Bioshock2Launcher.exe"
[HKEY_LOCAL_MACHINE\SOFTWARE\2K Games\BioShock 2\SP]
"InstallPath" = "K:\Games\2K Games\BioShock 2\SP"
"Working" = "K:\Games\2K Games\BioShock 2\SP\Builds\Binaries"
"Launcher" = "K:\Games\2K Games\BioShock 2\SP\Builds\Binaries\Bioshock2Launcher.exe"
If you use a 64bit version of Windows the registry key will be slightly different, look in the "Wow6432Node" under the "SOFTWARE" key:
[HKEY_LOCAL_MACHINE\SOFTWARE\Wow6432Node\2K Games\BioShock 2]
Check to see if you have these keys, if you don't then the updates will not be able to find the game files.
These are some of the registry keys applied by the title update:
Note that the version here is 22.214.171.124, I'm going to guess that that's what GFWL is looking at to determine if a title update is needed. Please don't go and manually change the version data just to stop the update. I don't know if that would work anyway and I'm sure you'll screw up the game's installed files.
"ProductName" = "BioShock 2"
"PackageCode" = "5EF29A917E3524C46A7E4A2F02EC3E22"
"Language" = dword:00000409
"Version" = dword:01000002
Look in the game install folder to see if the files were actually updated. These are the date and time for some of the 126.96.36.199 files for the retail US DVD version:
If you use Vista or Seven you may have trouble if you install BS2 into the "C:/Program Files" or "C:/Program Files (x86)" folder. The software is supposed to work when installed there but for some reason some people have problems with Windows permissions to those folders, Windows likes to have exclusive access to those folders and may prevent updating any files in those folders. This can sometimes be fixed by running the game or GFWL or any updates as "Run as Administrator".
02/13/2010 14:57:36 ...\BioShock 2\MP\Builds\Binaries\Bioshock2.exe
02/13/2010 14:59:20 ...\BioShock 2\MP\Builds\Binaries\Bioshock2Launcher.exe
02/05/2010 18:09:26 ...\BioShock 2\SP\Builds\Binaries\Bioshock2.exe
02/05/2010 18:09:26 ...\BioShock 2\SP\Builds\Binaries\Bioshock2GFW.dll
I've found it is simply easier to never install a game into those folders (using Seven Pro x84). I install all my games onto a separate partition on a separate physical harddrive and have never had trouble.