As of TeX Live 2008, a dedicated package manager is included, named tlmgr. Among other things, it can update packages dynamically over the Internet. The full documentation for tlmgr is available (updated nightly), or you can run tlmgr --help.
Not surprisingly, the initial version of tlmgr that was burned onto the TeX Collection DVD had bugs (no doubt the current version has bugs too). The DVD version works fine for local operations, such as setting paper sizes, so if you plan to just do the installation and then use TeX (a perfectly viable approach), then you don't need to worry about this.
If you want to update packages over the net, and are starting from the DVD (or ISO image), please update tlmgr first, by itself. This will save you considerable heartache. Here are the two commands for updating tlmgr:
tlmgr option location http://mirror.ctan.org/systems/texlive/tlnet/2008 tlmgr update bin-texlive texlive.infra
Explanation:
After performing this update of tlmgr, you can run, for instance, tlmgr update --all, which will update (including additions and removals) all other packages in your installation that have been changed on the server. (Authors are constantly releasing new versions of their work to CTAN.)
Once your installation is up to date, it is ok to let the infrastructure packages be updated in the normal course of things. It's just the very first update, which will involve hundreds of packages, where it's highly desirable to update tlmgr by itself, first.
You may end up in a situation where tlmgr itself does not run due to Perl errors, failed updates, or some other reason. If this happens, the simplest way is to download and run update-tlmgr-latest.sh (Unix) or update-tlmgr-latest.exe (Windows). These are self-extracting archives which include all the infrastructure files. Running them should restore tlmgr to a coherent state.
Before running them, be sure your PATH is set to use the TeX Live 2008 bin directory; the archives use kpsewhich from PATH to figure out where to unpack themselves.
On the other hand, if you like living on the bleeding edge, you can get the latest tlmgr from a separate ‘tlcritical’ repository. This command will show you what will be updated:
tlmgr --location=ftp://tug.org/texlive/tlcritical update --list
To actually do the update, use --all instead of --list, as usual. This directory is updated nightly from the development sources, so don't expect perfection.
Please email bug reports or other comments to the tex-live mailing list.