What is the best practice for dealing with BizTalk 2010 Service Pack and Cumulative Updates?

Yes, best practice is to install the latest Cumulative Update for BizTalk after first testing it in your test environment. One of the reasons for this, is that if you ever do encounter an issue in your production environment and raise an issue with Microsoft, one of the first things they will want is that you are on the latest CU, if you aren't then they will want you to try that first.

Support for service packs and cumulative updates

BizTalk Server supports all service packs, cumulative updates, security updates, and hotfixes. We encourage you to install the latest updates for Windows, SQL Server, Visual Studio, or any installed program. Service packs for Microsoft products are supported based on the baseline support for that product.