The App_offline file actually tells the web-server to STOP accepting asp.net application request.
As such its not possible to run a site update while the server is offline.

You can and should use app_offline while copying a new update fileset to your hosting, but you need to remove app_offline for the dnn updater to actually execute.

This has been a design flaw in DNN for some time - but there is not current viable workaround that deals with the issue.
It has been suggested in the past that the dnn upgrade module should maybe execute using a method that does not require asp.net to be running.

Or alternatively offer a mechanism that allows the server to be marked as offline at http handler level - basically intercepting ALL page requests and displaying a site maintenance page regardless of what url is requested- excepting for an updater url.

Westa