I want to keep my domains registered with company X (cheap) and host the accompanying sites with company Y. I have been given the option of updating the nameservers with the people i registered the web name with, or to have the domain registered with the hosting company. Whats the difference in the options? The hosting company is good for hosting but expensive for renewing domain names. Thanks

You should update the name server information with the registrar to the new hosting company's server otherwise no one will be able to visit your website by using the domain name besides your email will never reach destination.

The Internet works with IP addresses, the use of names for computers is for human understanding and benefit. The name server performs a name to number mapping for each computer on the Internet.

Updating name server will only point the domain to the new hositng company but will not change the registrar (in your case the company X), but if you transfer the domain then you will not have to worry about the name server updating as then the new registrar (company Y) will update the name server entry for your domain in its data base.

Check with Company Y about their name server then go to Company X and update the name server information in their database.