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Hi,
You cannot update using an external drive. It needed your boot drive, which is your C drive, to install Windows. It needed a required amount of free space on the C: drive to install the update.
What is the capacity of the internal drive, and how much is currently free space?
Please open your Disk Management and provide a screenshot of the result.
What update are you trying to install?
I look forward to your response.
Stay Safe!