How to avoid a terminal server user to reboot the machine on Windows update notification?

You can do this via Group Policy. See "Allow Non-administrators to Receive Update Notifications" on TechNet.

The specific policy you want is situated in Computer Configuration > Administrative Templates > Windows Components > Windows Update, called Allow non-administrators to receive update notifications.

However, note further the following notification provided at the above TechNet link:

This policy setting does not allow non-administrative Terminal Services users to restart the remote computer where they are logged in. This is because, by default, non-administrative Terminal Services users do not have computer restart privileges.

I assume your users do not have administrative privileges over the Terminal Server. Provided they do not, they will not be able to execute a restart anyway (regardless of the Windows Update dialog box state).

If they do have administrative rights, you have greater problems, and should review that policy first. With administrative rights, removing their ability to perform computer restarts is impossible, since any restriction you apply can (in theory) be overridden. Not to mention having users with admin rights on a Terminal Server is not good from a security and isolation standpoint, regardless of what any vendor says about their software requiring it (vendors typically make broad assertions about privileges which are untrue and their requirements can normally be dialled back quite considerably).