General virus question - is this normal? Can 360 block it?

I visited a website with my browser, and several things happened.  My hard drive started rotating furiously.  Then a screen came up asking me to install a security product - this kind of thing is usually a scam.  I shut everything down, and then windows update tried to put in several updates.

My questions are:

1. if you visit a malware site, can it read your saved passwords and any other information you were dumb enough to not delete from your browser?

2. Could 'windows update' actually load a virus on your computer?  I notice that 'windows update' updates products such as HP printers, so why not update a back-door virus?  And would Norton 360 be able to intercept this type of update?

Thanks.