It won't lock the entire table, it'll lock the row being updated.
You can't do a select * with no where clause because there's a row locked. If the entire table was being locked due to the update, then you wouldn't be able to run a select on some other account, and as you show, you can.
Gail Shaw
Microsoft Certified Master: SQL Server, MVP, M.Sc (Comp Sci)
SQL In The Wild: Discussions on DB performance with occasional diversions into recoverability