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I figured out my own question, but incase anyone wants to know and doesnt know, you have to get the update by getting on xbox live (You can be a silver member) and just put in the disc to get the system link patch. (Do this with every game system you are goin to use in your LAN party).
Now one thing that kind of scared me was, you cannot play Free roam by yourself, it will come up saying network is not connected or something like that. When you select multiplayer and select system link it wont work unless you have a system link cable in or ethernet cables in a switch or router and or hub connecting 2 or more xboxes.
This is all for Offline play, you do not have to be on xbox live to play free roam, the only thing you need xbox live for is the patch so if you dont have DSL or cable,(like myself) just go to a friends house or family member, im sure everybody knows somebody with high speed interenet.
Anyways after you have everything done just select system link (while you are connected in a LAN) and boom your in free roam.
I was getting frustrated trying to find this kind of info, but hope this helps out.