OK, this code:
UPDATE T1 SET [September 2012 Billing File] = CASE WHEN T2.[Application ID] IS NOT NULL AND T2.[ServerName]
IS NOT NULL AND [TB Billed This Month] <> 0 THEN 'Y' ELSE 'N' END
FROM TableName1 T1
LEFT JOIN TableName2 T2 ON (T1.[Application ID] = T2.[Application ID]
AND T1.[ServerName] = T2.[ServerName]) WHERE T2.[Data Period] = 'September 2012'
will set [September 2012 Billing File] = 'y' if [TB Billed This Month] IS NOT = 0. If you want it to set [September 2012 Billing File] = 'y' if [TB Billed This Month] = 0 the the '<> 0' in your code needs to change to '= 0'.