"Install Now" or "Install Tonight". (where's the option for "neither, I'd still like to be able to use that iPad 2 tomorrow, F.O.!!!"?).
1 - Like all iOS programs, you can simply abort that. It's still responsive to the home button, you can close the Setup screen and AFAIK it won't nag you once it's told you about it (although most updates come for good reasons).
2 - I have yet to come across an Apple update which has borked kit. Not that that won't happen (Apple is just as fallible), but I found that unless it's a really super urgent fix it pays to wait a few days and see if there are issues. Works on Windows too, by the way, provided you kill off the automatic updates.