I have gotten a few questions about what was in the update for KB980729 which was an update for OneNote 2007 published on April 13th, 2010.
This was an update to OneNote 2007 to make sure there was no data loss when you sync your notebook on a SharePoint 2010 server. If you are planning on upgrading your SharePoint server to 2010 and you have notebooks stored on SharePoint then you would want to make sure you install this update. However if you don’t use SharePoint notebooks you don’t need this update, but it is recommended that you install it.
For people who like details please keep reading: OneNote 2007 would query SharePoint for the list of items (sections, thicket folders, section groups) in a notebook it would get the default list size in SharePoint. In SharePoint 2007 this was 100 but in SharePoint 2010 they lowered it down to 30. And since OneNote creates a thicket folder for each section this would meant that if you had more than 15 items in OneNote it would cause sync to fail and sections to disappear. The update is to make sure that OneNote queries for 100 items no matter the view setting.
Thicket folders are where OneNote stores all of the embedded files for a section. If you section is called Home.one then there will be a thicket folder home_onefiles for that section.
Sorry for the confusion and we are working to make sure that KB article is more detailed but in the meantime hope this blog post is helpful.