There is no definition for Fully Managed as it varies across all providers. We do say we are Semi-Managed which in some cases we do the same (if not more) then some Fully Managed providers. With Fully Managed proactive updating of things such as the OS and applications are included in most cases however this can be automated via cPanel itself so it doesnt take any work really. We don't force updates and we don't restrict you from doing what you want. You have full root access so can install Shoutcast or any script you want (just so it doesn't go against our TOS). Here is our definition of the service we provide.
Internetbrother, what is essentially comes down to as Joel stated, is that with most managed providers, they will go in and update your VPS without you having to submit a ticket. However, sometimes you might not want the provider to just "walk into" your VPS when ever you want. In my oppinion, KH strikes the right balance. They certainly will go above and beyond the call of duty if you submit a ticket, but they are not intrusive.