A new version of rhn-applet fixes the issue with it showing all packages requiring updating.

Updated file is :-

rhn-applet-2.1.7-1.1.centos.1.i386.rpm

in updates/i386/RPMS/

This is available at http://mirror.centos.org/3.3/ and should be on all mirrors within a few hours.

To update to the latest version 'yum update rhn-applet' should be sufficient.