Finally, Soul Calibur for the XBOX finally made the BC list for the 360. I've checked it myself, and it does work. There are still many games that I own which aren't on the BC list, some that I'd really like to see:

Morrowind
Silent Hill 2
Syberia
Dark Alliance
NFS Hot Pursuit 2
Fight Night Round 2
Munch's Oddworld
etc

Unfortunately, it looks like they didn't update Soul Calibur so that it would play in 720p and 1080i/p in 16x9 mode. I believe you had to be in 480i/p mode to use that mode in the original, but I'm sure they could have done some thing with that. Who knows - maybe they'll update that later, if it's possible.

I'm curious, how do they update the games to be backwards compatible? Do they release a patch or are the latter 360s updated?

You can download the iso from their site to patch the system, or they will auto update if you put in a game from the new update, via your free silver account. You have to have the hard drive to update.

When new revisions of the hard drive or premium system comes out, the newest update at the time will be included.