Shoutbox

Uninstall Windows and install this:
http://www.gentoo.org/
=P

Nah, really, one, he couldnt know your IP unless if there has been a webcam/audio conv or file transfer, which was active. There is no other way. If this isn't the case then he's bluffing. Also, you most likely have a Dynamic IP as well (unless if you pay huge amounts of money to get a static IP, only companies have it). Which means, by the next day the IP he has of you is probably invalid, as yours will have changed, and he'll need to find it again. (Through the ways I previously said, unless if he has other means of connecting to you, like, I dno, ICQ? P2P software where you have him added?).
For the rest, yes, update your windows, stop using lame, unsecure software which invites hackers, like, Internet Explorer (get opera for free here or get mozilla firefox). And just be careful on what files you accept from people, and whether you are sure you can trust the people (and know that they are who you think they are). Etc..

Basically, don't be a retard, and you're safe.

(And as we all know, being a retard includes trusting Microsoft software).