Certain users want to update work items across project areas. Is this possible just by associating the projects as workitem providers? Will this allow users to update workitems in other project areas without having access there?

Just thinking of a solution which would make life easier without having to provide everyone access on all project areas separately.

Associating the project areas as work item providers will not allow you to bypass the usual permissions checks for modifying a work item. Creating the associations between project areas will allow you to link work items in the two project areas but doesn't let you modify the work items in the other project area.

If you want to allow users to make changes to work items in a project area that they are not a member of, then all of the following need to be true:
(1) The user needs an account on the server (which is already true if the two project areas are on the same server).
(2) The project area needs to be visible to everyone, not just project area members.
(3) The Everyone role needs to have permission to modify work items.

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David Olsen | IBM Rational | Jazz Process Team

But will this not override the roles and permission settings for the current memebers of the project area, since everyone role includes all users in the repository?

Yes, giving permission to the Everyone role effectively means that you can't deny permission for that action to any other role, since everyone has the Everyone role.

Giving everyone permission to make changes to your project area may or may not be the right solution for you. It depends on what level of security you want to have.

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David Olsen | IBM Rational | Jazz Process Team