1. Both Windows and PowerShell are products of Microsoft, it makes no sense not to give windows update the update that migrates PowerShell 5 to PowerShell 7.

There is nothing that migrates from one to the other, they are separate shells.

2. PowerShell 7 is better than PowerShell 5 and is backwards compatible, it also makes no sense why the better one doesn't automatically deprecate the old one, because it means Microsoft has to maintain PowerShell 5 while developing PowerShell 7, this doesn't sound very efficient.

While it makes every effort to be backward compatible there are many breaking changes, different command line options, parameter interpretations, default behaviours, character encodings etc.

3. I think that every script or program that calls powershell.exe should call pwsh.exe instead.

That should be entirely a choice for the user.

There is a proposal to ship PowerShell 7 alongside PowerShell 5, but at the moment it is still a proposal. If you read that discussion it is not such a simple matter.

Operating systems should be about providing basic functionality, if that requires apparent duplication of function then so be it. An ARM64 version of windows has 4 complete sets of binaries, for ARM32, ARM64, x86 and AMD64. Internet Explorer coexisted with Edge for many years.

A single installation of Linux can have sh, bash, zsh, ksh, csh and more. While some are more recent than the others it does not imply that one is better than the other for a specific purpose.

The last thing in the world that anyone needs is all their powershell scripts breaking due a windows update.