If you don't want to download an update (in Windows Update) and want it to "go away", right click the update and you should see an option to Hide Update, select that and it won't show on the main screen again. There will be an option (on the left) to Restore Hidden Updates if you ever want them to be available again.
Avast Free does not include a firewall. However, Windows has its own firewall which should be active if no other firewall has been installed. Microsoft Security Essentials has AV capbilities (but again, as far as I know, no firewall). You should not have 2 AV products running as conflicts can arise. I'd stick with Avast as it is highly rated.