I seem to remember that I had recently changed a label in a document
with several children and the references in other children have
automatically been updated correctly.
However, even if updating across children works at all times, there
would be pitfalls in co-authored docuements. For instance, you may
co-author a book where each chapter is a child. If the co-author
changes a label on his/her machine, his/her references in other child
documentsget updated but not yours. So if you include the updated
chapter from your co-author, references in your version would get
orphaned. This is a real problem as you would usually work concurrently
on different chapters.I believe that this is a serious argument against
automated updating of labels.
In addition, my 10 year+ experience with Microsoft Word indicates that
auto labels do not work well. I don't think I ever wrote a word
document with auto labels where all the references worked out of the
box. In fact, this problem caused me to use LyX or LaTeX whenever
possible, even when I was working in a "Word-only" environment.
Regards, Marcus