First, I'll admit that my knowledge of networking ends once I plug the Ethernet cord into the back of my computer. To this day, I haven't written a single line of networking code and wouldn't know how if I tried. Still, I'm curious...

Wouldn't it be possible to write a small program that looks at network traffic coming from the machine and blocks anything originating from Windows? So what if I cannot tell Windows to not send telemetry data. Why does that mean the data ever has to make it off of the machine or has to make it off in a format that is understandable by Microsoft's servers?

It's not so much about the data they send, but the data your computer sends them. Which may, explicitly according to their EULA, include any file on your computer.

You can of course write a small program that blocks the traffic. Every off-the-shelf application level firewall is basically doing that. Problem is that there is a multitude of services that legitimately access the network (even under Windows XP) and there is a multitude of servers (like 30 or so) that Microsoft espionage services connect to.
So, it's not all trivial to block them with a single simple rule, and you are most likely going to break "something" (though almost certainly you will only break Cortana, which is not a big loss). You will have to invest considerable time finding out what to block, and then a week later they change servers or ports with the next Windows update...

Also note that blocking the traffic does not eliminate the evil. The network traffic isn't even the only problem.

The software is still running and taking up resources. Contrary to popular pro-MS propaganda, there is no such thing as "doesn't impact you", and the often stated claim "you need to understand VM, they need not be resident in RAM" is an outright lie. Of course they are resident, since they're regularly executed.
Basically, you are throwing away a lot of RAM and CPU and SSD wear levelling for something that is not beneficial to you in any way.

Wouldn't it be possible to write a small program that looks at network traffic coming from the machine and blocks anything originating from Windows?

At the network level, no, you cant tell whether the data came from Windows or not

My best advice to you and I think the only way to block any communication between Win10 Home edition and Microsoft servers is to install Linux on your machine. That "telemetry" data you are talking about is mostly windows update and it is actually good thing you can't turn it off. Mind that most botnets run because people considered it harmful to update windows (because it breaks everything and is not "secure") but didn't consider it harmful clicking any links in emails or sketchy offers in web ads.

... on second thought, I'm sure there is already a free program on download.cnet.com or similar website to block all that traffic. Just be sure to leave all default options on the installer :)

Direct answer to question: You can block traffic to certain servers, but you'll have to find out what severs are getting data you don't want.

FUD rebuttal: Windows 10 does not "spy" on you. 99% of all the web traffic can be turned off through the very visible Privacy control panel. The only parts you can't turn off is automated crash reporting for OS components, and, in home editions, Windows Update (which shouldn't be turned off anyway). The network and disc traffic used to report crashes, improve searches, and provide additional features is miniscule compared to what you run already, so there is no additional "wear and tear" on your components, SSD or otherwise, or degradation of performance. In fact Windows 10 is shown to be lighter weight then 8, which was lighter weight then 7.

Putting another OS on your machine will not solve the issue as every single modern OS talks to the web for updates and crash reporting, just like MS. Several of them will also integrate web searching in the same way. And God help you if you're using anything made by Google ;)

FUD rebuttal: Windows 10 does not "spy" on you.

Their EULA and their Privacy Statement explicitly say so (and the software demonstrably does). Among other things, they explicitly state: "we collect data about you, your device, and the way you use Windows".

so there is no additional "wear and tear" on your components, SSD or otherwise, or degradation of performance. In fact Windows 10 is shown to be lighter weight then 8, which was lighter weight then 7.

These claims are simply not true. The constant monitoring that is being done (such as e.g. logging each and every program that you launch) is code that is loaded and executed. This means code is run and page faults happen, resulting in more reads (and eventually writes). You therefore certainly have higher wear.
Which would be OK if it was for something that is beneficial, but it's for something that you don't have any benefit from.

I have Windows 7 and Windows 10 running side by side in two virtual machines as I'm typing this, no programs/windows open other than process explorer (the Win7 system has VB guest additions installed wheras the Win10 system does not).
Process Explorer under Windows 7 shows a commit size of 695MB versus 892MB under Windows 10. You cannot talk away the fact that 800 is a bigger number than 600. And hey, I'm not even talking about what happens when you touch the mouse or the keyboard or even click on the start menu under Windows 10...

Process Explorer under Windows 7 shows a commit size of 695MB versus 892MB under Windows 10. You cannot talk away the fact that 800 is a bigger number than 600. And hey, I'm not even talking about what happens when you touch the mouse or the keyboard or even click on the start menu under Windows 10...

Sure you can. 25% could just be random variance. Or higher-resolution icons and desktop backgrounds...

Not sure of new builds but Windows 10 was noticeably slower than Windows 8.1 Update 3 therefore I reverted back due to this and other reasons.

Problem with telemetry is you don't really need it (It is introduced to Win 8.1 as update just few months ago) and there isn't a legit way to get rid of it practically. They only offer this at Enterprise Edition but you can't buy unless you're an enterprise. Solution is bringing back disabling telemetry and Windows Update for Windows Professional edition.

I can live (and living at my Lumia 920) with the cloud features and "spying" but it is plain ridiculous if I chose to use Windows offline with local account.

And for blocking telemetry , there are several Windows 10 privacy programs claiming to solve this problem but never had a chance to try.

Not sure of new builds but Windows 10 was noticeably slower than Windows 8.1 Update 3 therefore I reverted back due to this and other reasons.

What sort of hardware are you running on?

Windows 10 boots around 2x faster than 8.1 for me (although in both cases we are talking seconds), and I've noticed no performance issues when running.

Not sure of new builds but Windows 10 was noticeably slower than Windows 8.1 Update 3 therefore I reverted back due to this and other reasons.

What sort of hardware are you running on?

Windows 10 boots around 2x faster than 8.1 for me (although in both cases we are talking seconds), and I've noticed no performance issues when running.

Xeon E3 (1245 V3 - equiv. i7 4770) - H97 Mainboard - 16 GB RAM - 120GB SSD - 2 TB HDD

and I felt like Samsung Touchwiz bloatware vs Nexus when using