Is it possible to "update" iTunes? Is it actually possible to update iTunes running on Windows 7 Ultimate?

Because every time I've tried, it fails with an error about one service or another. The error is usually related to not having sufficient permissions to modify the service, even though my account is configured as Administrator, and the service varies.

The only way to get the latest version installed consistently is to manually uninstall everything, reboot, then run the installer.
Just remove the iTunes app and redownload it from apple's website. If you just remove the app it should leave your media files untouched but take a backup just in case.