Well, I'm going by MS08-052 which had a SQL 2005 patch in it; it included a command line switch '/allinstances'. I checked and the KB954606 patch .bat file is using this switch, so I would say "yes", it will patch (or at least try to patch) all instances. I know our Server guys had some trouble with this patch on our SQL boxes, and we had some issues with it patching MSDE/SQL 2005 Express instances too, so YMMV.