I have been told that some Microsoft patches causes the CiscoWork to crash or stop working and only Cisco approved patches should be applied. Is that true ?
We are running the Cisco Works on a Win2003 R2 server SP1
No, that's generally not true. There have been a few patches that have been known to introduce problems, but generally we work to isolate and fix issues with Microsoft security hotfixes. New service packs are generally not supported until we've had a chance to fully vet them.