The PC used to update the smartphone sports a 64GB SSD as its primary system drive which before the update had roughly 12GB free on it. Zune software automatically backs up your device when updating Windows Phone 7 — just in case anything goes wrong — and it looks like the backup is an actual image of your device itself.
We had around 11GB of music, videos, applications, games and whatnot installed on our Optimus 7 before the update and we were surprised to see that it’s the same amount with which our hard drive shrunk after the process. After a little bit of folder hunting we found out that Zune has created a Restore Point for the handset at the following path:
System Drive:UsersUsernameAppDataLocalMicrosoftWindows Phone Update
At that path you should find a separate folder for each of your updates applied (we had two, one for pre-NoDo and one for NoDo). As a heads-up and general rule of thumb, make sure you have at least that much free space on your System drive as you have used on your smartphone. We’re not quite sure what would have happened if we had less than the amount required for the backup (11GB).
Also, it would be nice if Zune would allow you to choose a destination for the backup. Maybe you don’t want it on your System drive or on your SSD at all. Maybe you’d want it on your 2TB backup drive. Nevertheless, we moved the restore point to another drive in order to free up the system disk and functionality has suffered no impact so we might as well delete it after a while.