I have a textbox on my settings [the template I use puts it there] and just added a standard ASP RequiredFieldValidator to the page, and assigned it to that text box and when I click update it shows the validation error and does not post back.

What version of DNN?
When you mouse over the "Update" link, is it WebForm_DoPostBackWithOptions(...)?
I'd suggest getting FireFox and FireBug [I love firebug] and adding breaks into your validation function and going step by step. Has helped me a few times when it returned true and wasn't supposed to.

The simplest test would be to set it to false regardless and see what happens. I've had instances where I screwed something up [just right] so there were no errors, but it never ran the function.

Without more [not that I can think of anything more to give me] That's all I have. Maybe try a standard textbox and the standard requiredfieldvalidator and see if that works?