...update through my dashboard OR try to install any plugin... Any ideas?
Yes.
Warning: touch() [function.touch]: Unable to create file
Why did it fail?
because Permission denied in D:\Hosting\3986810\html\wordpress\wp-admin\includes\file.php on line 174
"Download failed.: Could not create Temporary file"
because: -Permission denied-
On the surface it looks like php (but I'm certainly no expert) encountered file ownership or permission issues that would not allow a script to perform the requested action. This could be due to the version of php on the windows server, or a multitude of other host/http server configuration related issues, as well as file and folder ownership or permission issues.
My Recommendation: Update manually with an ftp client. Install plugins manually with an ftp client.
Perform an extended search here in the forums using the keywords "automatic" + "update", and you will find many such related issues.
Perhaps some insight may be gained there on what you can do to get the automatic install working for your particular setup. (Sorry you got stuck on a Windows server).
Good luck to you!