How do I include the latest package updates in a customized LiveCD?

In general, you can do this with the LiveCD by chrooting into the expanded squashfs filesystem and running apt-get with upgrade or dist-upgrade. Note that the repacked customized filesystem may not fit on a 700MB CD (run clean, delete apt caches, etc. anyway)

Using ubuntu-defaults-builder, you can make your original iso image including update packages.

Step1. Install ubuntu-defaults-builder

sudo apt-get install ubuntu-defaults-builder

Step2. Making Template

ubuntu-defaults-template ubuntu-12.04-desktop-i386

This command makes directory named ubuntu-12.04-desktop-i386 within several files and some folders.

Step3. Customizing Template

In ubuntu-12.04-desktop-i386 directory, hooks/chroot file is there. Add below 3 lines to last part of the file.

apt-get update
apt-get upgrade --yes
apt-get clean

If you want to localize, change i18n/language.txt, i18n/langpacks.txt, and i18n/keyboard.txt. Or if you want to add some applications, add package names into depends.txt in top of directory.

Step4. Making DEB Package

dpkg-buildpackage -us -uc

This command makes package named "ubuntu-12.04-desktop-i386_0.1_all.deb" in upper directory.

Step5. Execute ubuntu-defaults-image

cd ../
sudo ubuntu-defaults-image --package ubuntu-12.04-desktop-i386_0.1_all.deb

This command makes iso image named "binary-hybrid.iso".

But this image is over 726MB, you should burn this iso image to DVD disc, or install this iso image to USB drive.