1. "Update image" doesn't do anything if you haven't changed the image. Scribus doesn't include images into the .sla file, but link to them. So, if you have changed the image externally (e.g., using GIMP) while Scribus is still running, clicking "Update image" will, well, update the image and show the changes.
2. For GIMP, you probably should add the full path to GIMP's .exe file: In Scribus, go to File > Preferences > External Tools > Image Processing Tool and specify the exact path to GIMP.