As far as I know, it does this by having a base file and a bunch of delta files alongside it on the server. Applying these deltas is time consuming, you have to choose how many levels of delta to keep around, and you end up downloading a lot of redundant content (ie. information about old packages, only to replace it with the delta content).

bupdate avoids that by just letting you post only the latest file (and .fidx), then the client figures out which blocks it doesn't yet have.

are you talking about pdiff for list files, or debdelta (http://debdelta.debian.net/html/index.html)?

I've never seen debdelta used in the wild, but I know Fedora's delta RPMs work quite well.