I have to say this are all excellent question and I will go through your excellent questions one part at a time with the small knowledge I have about the Ubuntu ecosystem. I have divided your question into several smaller ones:
1. Does Ubuntu support a particular version with a limited time?
Before explaining the time limit for each version (9.10, 11.04, 12.10...) or type of version (Desktop, Server...) we need to first see some variables that are taken into consideration for this time limits. For example, some of them are:
Man Power / Geek Power / Amount of Developers - This is the amount of geeks, developers and in general people that work in the creation of Ubuntu. This is the amount of people that can put some of their time to work on the upcoming Ubuntu release, the current Ubuntu release and/or a previous version of Ubuntu. Right now, with the time periods for support pushed from Servers to 5 years and Desktop to 5 years in LTS and in normal versions to 2 years, this means that the Ubuntu devs have to work in around 9 versions of Ubuntu. As of this writing the versions of Ubuntu that have support are:
8.04 Server LTS
10.04 Server LTS
12.04 Server LTS
This does not include the work done in 12.10 which is the upcoming version (As of this writing). So in total, right now, there are 10 versions that are getting support. For what I have seen, the 2 versions that get more support are the 12.04 and 12.10 in a somewhat 70%-80% work for 12.10 and 30%-20% for 12.04. Of course if we take into account the other previous versions of Ubuntu that are getting support it would be something a percent bigger for the upcoming release, followed by the second biggest percent for the current release and then followed by several almost equal percents for each previous version supported. This means in plain english that devs focus more on upcoming and current releases but still do not abandon older, supported ones.
The point of all of this is to get a clear look into the amount of work that needs to be done for this 10 versions of Ubuntu to satisfy and to offer support for all the users of each version. With this in mind we jump to the second part.
Hardware Evolution / Software Evolution
With time comes new hardware, new software techniques and new innovative and smart ways to create new stuff and to make old stuff better. For example, when Ubuntu 5.10 came out, there was no USB 3.0, Sata 6G or NFC. This also applies to the hardware and software in that time frame. When a motherboard came out, around the time that specific version of Ubuntu came out there was no X hardware invented or developed. There was no GCC with better X properties and Y compiling times.
This means that for each new version that comes out, Ubuntu tries to absorb whatever new technology that comes out in the world. This helps the development a lot if the time frame between releases is short, since having a time frame between version of, let us say, 10 years, would mean that it would need to adopt all technologies in that time.. THAT IS A LOT!. Having it in one year also means that users might not get the updates they want or that special version of the program they use in time. A balanced time frame therefore is the release cycle of 6 months. That is why in this example the release cycle is a 6 month time period. So anything that happens in the next 6 months can be applied to the new version (To some degree of peace of mind for the developers I may add).
Basically we have a time frame that focuses on end users, developers and has an eye on new technology, new ideas, new software. Balanced if I can say so.
Ideas / New methodology / New techniques
In order to apply and work with the 2 points mentioned above, new ideas come out every so often (Can I say every 6 months ^^). So ideas for a better Gnome desktop, for a better way to integrate user actions, for a better and accessible computer experience. Having this also means that ideas that looked nice 2 years ago, might not look so much today, or maybe can be enhanced or changed for others. This affects they way for example the behaviour of a single program up to massive change like the transition from Gnome 2.x to Unity. This are also thought into the plan of development of Ubuntu.
With all of this points in mind we can actually say that having the support for each version of Ubuntu limited to an amount of years is a pretty good idea. This would make the developers focus more on applying their time on new technology, new hardware, new software and new and current Ubuntu versions. This might sound like a "abandon all hope to anyone that has a previous version" but no. The fact that Ubuntu has support for very old versions, like the 8.04 and even has a Long Term Support option with their Ubuntu versions every 2 years mean that they actually have a plan for older versions. They want to offer security, stability and a sound OS that can deliver when you need it. All of this while thinking of the 10 versions of Ubuntu that get worked done on them.
2. Do (Very Old) versions still get some kind of support and updates?
Yes. But not all. As I mentioned before, some versions like the 8.04 get support, but this is because they have LTS (Long Term Support) which gives you a guarantee that they will support it for the next 5 years, while other normal versions get a 2 year. Even in this case, if a particular security vulnerability arises your Ubuntu version will get an update for it. Keep in mind that, the older your Ubuntu version is, the less updates it will get. It will still get them, but they could come all in one big hunk of patches on the same day or small amounts every so often. This is one reason to update to a new release. You will get, not only the updates and changes on the new release but you will be assured that you will have support for new technology in the hardware and software parts of the computer world.
3. Should users update from not support versions (Very old versions) and how?
Yes they should. The only exception is, if you live in a very remote, away from civilization, no penguins allowed place. But you should update to keep your system current and up-to-date. In the case of not support versions, what most people will tell you is to backup your files and do a clean installation. This helps solve any issues you might find while doing an upgrade from one version to the next and also the amount of information that you would need to download.
Is not the same to update from 9.10 to 10.04, 10.04 to 10.10, 10.10 to 11.04, 11.04 to 11.10, 11.10 to 12.04 and finally to 12.10 than to simply download the 12.10, backup your important files and do a clean install, then restore your backup files. Saves you time, bandwidth and you can start "working" sooner. The good news is that since a couple of version ago, new version of Ubuntu include in the LiveCD/LiveUSB an option in the installer to upgrade an existing older version of Ubuntu on the computer. So if you insert a LiveCD of 12.10 for example, and it detects an older version of Ubuntu, it will give you the option to upgrade it. Saving you tons of time and bandwidth along the way.
Of course if you are trying to upgrade from an EOL release to a newer version and the next version is also EOL (For example trying to upgrade from 6.04 to 6.10 where both are EOL) doing the normal procedure like using
do-release-upgrade -d or
apt-get upgrade will not work because they will look for the next version and since it is also EOL will throw an error. More information about this in How to install software or upgrade from old unsupported release?
In those cases I also urge the user to download the latest and either upgrade from the liveCD or reinstall from scratch after doing a proper backup.
There is even a page dedicated to EOL (End of Life) releases: https://help.ubuntu.com/community/EOLUpgrades/
4. How does Ubuntu´s "life-cycle" differ from Windows?
I will compare the Windows XP to Windows 7 life cycle or release cycle to the Ubuntu one. I am skipping Windows Vista because, well, we all know what happen to it. Hasta la Vista, baby!.
Anyway, in the time frame between Windows XP and Windows 7, Ubuntu came out and then released 9 new versions of Ubuntu that each incorporated new technology to it, new software updates and techniques and new ideas from the community and devs. Read carefully, 9!. Before Windows 7 came out, did you know Ubuntu supported USB 3.0. Windows 7 did not support USB 3.0 when it came out. This gives you a direct idea of how, not only Ubuntu but software development in the open source world moves. It does not walk but runs. After the release of Windows 7 and before Windows 8 came out, Ubuntu had release versions 11.04, 11.10, 12.04 and 12.10 all of them incorporating new hardware/software.
This is all thanks to the direct link between all the points mentioned above and the time frame for development. The hardware and software worlds are moving very fast and for a Operating system to work in it, it has to develop and adapt according to this speed. This is a big benefit and attribute that benefits Ubuntu when compared to Windows. Although Windows has Service packs, they do not offer not even 10% of what happens in the time they release it and the time that version of Windows came out (2 years from the release of Windows 7 up until the SP1 for it just to give you an idea. That is about 4 versions of Ubuntu or 12 versions of the Linux kernel.).
So this way, you can see the benefits of a 6 months cycle versus a 2 year or 5/7 year one. Adds quicker support for hardware so the end user enjoys it. Adds new software techniques to it for less cpu/memory usage and it can be optimized quickly so the end user does not have to wait years for an official fix to appear.
Overall, I think you can see each question answered in a way that helps you know the WHY, WHEN and HOW Ubuntu only supports versions for a limited time. I wanted to add one more question that many users asks and many times confuse:
5 What is the difference in stability between LTS and Normal releases
If we are to talk about stability between both versions, then the answer is: The same. They both have the same stability because one of the main objectives to every Ubuntu version has always been Stability. If you install a LTS or a Normal release you will get the same stability. The actual difference between LTS and a normal release is what the LTS implies: Long Term Support. Which simply means, you will get updates for a longer amount time compared to a normal release. You will not get an enhanced performance, better graphics, more speed or anything else when comparing a LTS to a Normal release. This is not what a LTS offers in comparison.
For more information about the Differences between LTS and a Normal release (Which is also Stable) please see What's the difference between a Long Term Support Release and a Normal Release?