We have recently addressed an issue that improves the ability to install the Windows 10 November update on systems with low available storage space.
Previously, on systems with small hard drives (16 GB or 32 GB), you may not have been able to free enough space to upgrade, even with the assistance of external storage. In this scenario, Windows Update would report an error when trying to install the November update: “We found some issues. Select this message to fix and finish updating.” When clicking the “Fix issues” button, a message would appear that said “Windows needs more space”, and one option provided is to “Choose another drive or attach an external drive...” If you selected this option and attached the external drive, Windows was not making good use of that external storage, and you may have seen a message saying that you still needed a similar amount of free space to install the update.
With the fix that we’ve released (KB3124260), Windows will better use external storage, making it much more likely that the install will continue once you select to use an external drive and hit the Refresh button. The fix reduces the amount of space required on the C: drive by over 2 GB.