Perhaps this will help someone. I have Wordpress blogs running on Linux servers, but my development machine runs Windows. I like to have Wordpress installed locally so that I can test things via http://localhost before publishing them to the world.

The problem I always ran into was that when new versions of plugins were released I could use the automatic upgrade feature on the "live" site but never on my development machine.  I would always get an error message saying that the previous version of the plugin could not be removed, and therefore the new version could not be installed.  I knew that Windows file security was at the root of the problem but I never felt like investigating the fix.

Turns out it's really simple. All you need to do is set the file permissions on the wp-content directory (or perhaps just the plugins directory if you prefer) such that the IUSR_yourcomputername account has sufficient access to delete the files. 

That's it!