Does Windows do the updating of all devices drivers or does one need a 3rd party software for this purpose

Two points (partly repeating and reinforcing what JimWynne already said):

1. Do not believe what AVG tells you about your *needing* driver updates. Don't do it just because it's X years old and there are upgrades available. Although a driver upgrade normally goes well, it is not without danger. Do a driver upgrade if you need to--because you are having a problem that the new version is known to fix--not just because one is available.
2. If you do want to get a driver update or updates, do not buy it from AVG or anyone else. It's a complete waste of money, and is dangerous. Do not get them from Microsoft either. The best and safest place to get any driver update is from the web site of the manufacturer of the hardware the driver is for. It's always free there, and is most likely to be trouble-free.

The only way that drivers should ever be updated is if (a) a new driver has desirable functionality that the old one lacks or an existing driver has become corrupted and (b) the drivers are obtained directly from the device manufacturer(s).   Windows, while better at driver updates than it once was, still isn't reliable and shouldn't be used.  Driver-updating programs are a waste of time and money and are also not reliable in getting the correct or most recent drivers.

My question arises here. The Windows OS then gives the user the option to either let it search from within the device's programmed read only memory or the internet using the manufacturer's embedded link to search the net and get the most suitable driver to be downloaded and installed. But does it always succeed?

If not then the user has no choice but to look for freeware on the net ...

That's not the correct conclusion.  As both Jim Wynne and Ken Blake have advised, don't use third-party driver update utilities.

In the event that a new driver is needed (e.g., the current driver has somehow become corrupted, resulting in a warning icon in Device Manager), rather than clicking the "Update Driver" button in the device's "Properties" sheet, do this:

• If the computer is a "name brand" machine, go to the website of the computer's manufacturer, enter your system's identifying information (e.g., serial number, Dell Service Tag, or at least the specific model), and download the driver offered by the computer's manufacturer.  Especially with "direct OEMs" like Dell, a driver may well have been modified by the computer manufacturer to provide brand-specific functionality.
• If the computer is generic, or if the computer manufacturer is no longer in business or no longer supports your model, go to the website of the manufacturer of the device itself (e.g., Logitech for an add-on webcam, Nvidia for a video adapter, etc.).  Carefully examine the name of the device in Device Manager.  If you can't determine its make and model, click the "Details" tab, and use the drop-down list to select "Hardware Ids."  Then look up the "VID/PID" information on a site such as http://pcidatabase.com/ to determine the device's manufacturer and model information.

Some hardware devices use drivers that are built into Windows itself.  This includes things like hard drives, CD/DVD drives, basic keyboards, etc.  In the unusual situation where such a driver becomes corrupt, you'll need to run SFC /Scannow from an Elevated Command Prompt in order to repair the Windows files.

Thank you JimWynne for your quick reply.

The mention that Windows still is not reliable and should not be used, raises fear and uneasiness.

CA. Shyamal Mitra

New Delhi - India

Ken that was a very informative answer from you and I liked it.

A desktop PC whether assembled by a known brand like HP or Dell or an unbranded self-assembled one shall always have components manufactured by different manufacturers and to OEM assemblers like me drivers of most of such (Hard disks/DVD-RAM/Keyboards and mice do not come with driver CDs, Windows mounts them from its own files) come with driver CDs as the printers/scanners/ and video cards, digital cameras and the web cameras do. When the OS is mounted, the Mainboard drivers CD takes over and then all added devices follow with their own shipped driver software. 

The user after viewing the Device Manager comes to the satisfaction that all are working soundly unless he/she sees a yellow question mark or a yellow triangle appearing in a single or a class of devices and when clicked the driver information of that device's dialogue box tells you that drivers are missing or not installed.

My question arises here. The Windows OS then gives the user the option to either let it search from within the device's programmed read only memory or the internet using the manufacturer's embedded link to search the net and get the most suitable driver to be downloaded and installed. But does it always succeed?

If not then the user has no choice but to look for freeware on the net that after installation run a detailed report of all hardware and software installed and the manufacturers' details with their websites, for the user to tap into the required resources from the manufacturer's site. I used to use the Belarc Advisor during the Windows 98 days when every new device needed to pass the Windows verification standards.

What then are the indicators of a malfunctioning device or it's corrupted driver software? The Yellow Question Mark indicator in the Device Manager? And when Windows does not get you the driver do you have to do what I have described above?

Please pardon my lengthy content and answer me.

Thanking you again.

CA. Shyamal Mitra

New Delhi - India.