Office 2016 updates installing at root level of Macintosh HD. Has anyone else seen this? Any time I run MAU it drops all of the update pieces at the root level of the HD. This happens every time I run MAU. I am on 10.13.3, Office 2016 was originally installed via Self Service from pkg downloaded direct from Microsoft.
I think the biggest question is: when you say that the "base install" was a "pkg downloaded direct from Microsoft" - which pkg? I'd first make sure you aren't inadvertently using an update pkg as your base install.
I'd use the packages linked to from https://macadmins.software/ as your base installers. That's a site run by the Mac team at Microsoft, and the packages there are definitely the "full install." (If you are on a volume license, you would then just run the Volume Licensing Tool from the ISO you download from the VLSC on your clients.
The original install is from macadmins.software, my go to source for any MS installers. It definitely wasn't an upgrade package. The install works fine, but when updates are run from MAU either manually or automatically, things end up at the root level as shown in the screen a shot.
I just tested upgrading Word 15.41 to 16.10 with MAU 3.15 on 10.12.6 and it works fine as expected. I have updated my own system running 10.13.3 few days ago and MS Office apps remains in the Applications folder as expected. What version of MAU are you using?