diff -u includes/updater.inc includes/updater.inc
--- includes/updater.inc
+++ includes/updater.inc
@@ -38,7 +38,7 @@
   /**
    * @return string an absolute path to the default install location.
    */
-  public static function getInstallDirectory();
+  public function getInstallDirectory();
 
   /**
    * Determine if the Updater can handle the project provided in $directory.
diff -u modules/system/system.updater.inc modules/system/system.updater.inc
--- modules/system/system.updater.inc
+++ modules/system/system.updater.inc
@@ -12,7 +12,16 @@
  */
 class ModuleUpdater extends Updater implements DrupalUpdaterInterface {
 
-  public static function getInstallDirectory() {
+  public function getInstallDirectory() {
+    // If the module is installed in the configuration path (conf_path())
+    // we should install it there.  If it is located elsewhere, such as
+    // sites/all/modules we should install it in the conf_path/modules directory.
+    if ($this->isInstalled()) {
+      $installed_path = drupal_get_path('module', $this->name);
+      if (substr($installed_path, 0, strlen(conf_path())) === conf_path()) {
+        return dirname(DRUPAL_ROOT . '/' . $installed_path);
+      }
+    }
     return DRUPAL_ROOT . '/' . conf_path() . '/modules';
   }
 
@@ -76,7 +85,16 @@
  */
 class ThemeUpdater extends Updater implements DrupalUpdaterInterface {
 
-  public static function getInstallDirectory() {
+  public function getInstallDirectory() {
+    // If the theme is installed in the configuration path (conf_path())
+    // we should install it there.  If it is located elsewhere, such as
+    // sites/all/themes we should install it in the conf_path/themes directory.
+    if ($this->isInstalled()) {
+      $installed_path = drupal_get_path('theme', $this->name);
+      if (substr($installed_path, 0, strlen(conf_path())) === conf_path()) {
+        return dirname(DRUPAL_ROOT . '/' . $installed_path);
+      }
+    }
     return DRUPAL_ROOT . '/' . conf_path() . '/themes';
   }