Why is disk cleanup and usb only option for windows update when primary drive space is limited?

Hi Bert. Even thought I'm not an MS employee I would like to pitch in. I do think your suggestion would be a great feature to implement, and I would recommend you to communicate it to Microsoft using either the feedback hub (if you are a Windows Insider). I do however see that Microsoft is doing its best to aid in the matter by allowing you to delete unused files in the downloads folder, new approach to placeholders with OneDrive, better cleanup of old Windows-versions & patches and other additional disk cleanup tools. That's probably what they will focus on first and foremost. I do see that you easily could fill up 32GB on a device with useful applications - so your argument is valid. I would suggest that (if possible) that you put as much as possible of apps and local files on a separate SD-card, or use place-holders with OneDrive when you are on 1709.

I hope this helps and I hope that Microsoft will address your issue in a future release.