Sure, it would be chaos if you expect everything to just work out OK. But if you defang Windows 10 properly, it doesn't need to reach Microsoft servers. That is, blocking is a supplementary measure.
When I last used Windows, you could host updates locally. And I believe that Microsoft actually recommended that for large firms.
Yes, but the server that gets and shares those updates need contain no PII.
I do not trust Microsoft. And so, when I need to use Windows 10, I do it in a very careful way. I start with an anonymously obtained installer. I install and update in a VM, with Internet connectivity through a nested VPN chain. Then I clone the VM, and work in the clone, with *.microsoft.com blocked.
When necessary, I update another fresh clone. Then I clone that, and securely transfer files from the first clone. That way, Microsoft never sees anything except for a clean install, and has no PII to track.
The relevant question is whether it's 80% of people who are using pihole; that number is probably still pretty high, but lower than the average population I expect.
When I last used Windows, you could host updates locally. And I believe that Microsoft actually recommended that for large firms.