Update command won't work for multisites
As a test, change your working directory to the directory that contains the settings.php file for the site you want to operate on, and then run drush pm-updatestatus.  See if that bootstraps correctly.  If so, the issue is with your alias files.  These should work, so long as 'root' and 'uri' are set.

Note, however, that if all of your contrib modules are in sites/all, then one run of pm-updatecode will update the code for all sites. You will need to run drush updatedb for every site that shares any code updated by the last run of pm-updatecode.  Drush does not manage this for you, even with pm-update (which runs updatedb on just one site).

This is the added cost of multisite configurations -- you have to be a lot more careful with your update processes, and must update all of the sites at the same time.