If I'm not mistaken cancelling the event  receiver also cancels the add
if you are using an ItemAdding event receiver.

I am running it from a ItemUpdated event  reciever, and have removed
the cancel  and the item  is not added to the list  either.

Anytime you specify properties.Cancel = true; in an "ing" event, no
updates occur.

You can add/update listitems  in the "ing" and "ed" events. Instead of
item.Update(); try item.SystemUpdate();

Also, at the beginning of the event, execute:
this.DisableEventFiring();

At the end of the event, execute:
this.EnableEventFiring();

These commands manage the accidental firing  of events from actions
performed in your code.

Can you fill me in a little more then about what you are trying to
accomplish? Are you adding another item  to the list  when an item is
updated? Or to a separate list? For what purpose?