Inserting the spreadsheet via the Insert menu with the Object option works, provided you use the create from file option and make sure the link box is checked.
ArcMap caches the spreadsheet when you do this and doesn’t automatically update the cached representation.
Any time you wish to see the new representation (if anything is changed in the spreadsheet) double-click the linked object to start the application that created it.
This will refresh the cached representation and show you the updated spreadsheet.
Some users have asked that we notify them when the document is opened that it contains links to other objects and give them the choice to update them (this is how linked objects work in Microsoft Word) and this is under consideration by ESRI development.
ESRI Technical Marketing.