So it seems no one is able to fix this issue around the internet.
Looks like nowadays technicians won't escape the "plug-n-play", "you doing something wrong" fixes.
At the same time as tech "evolves" it's letting apart troubleshooting for situations that were really common years ago, like in this case of having no internet connection at all and needing a situational hotspot.
Now everything works with windows update, assuming you will always have a working connection.
So here's the old school fix for this issue:
With no internet access, you will plug in your iphone obviously sharing wifi, just to see it's not working.
First you need another pc with internet and download the iTunes installer.
Then install iTunes.
This will setup something we can call "basic drivers", that for some reason I don't understand, they do not include net drivers anymore.
Now when you plug in your Iphone it will get recognized!... But as regular phone, not internet access yet.
If you take a deep look into windows device manager, you will see there's a device not recognized with no driver installed with a name that can differ with each case. It will usually say something like Apple USB Ethernet.
Seems like when you turn your iPhone into a usb hotspot, windows needs another driver.
SO WHERE DO WE FIND THIS DRIVER?
Most of people have never installed a driver other than probably nvidia, in their lives.
Go into this "faulty device" properties -> Details -> Property -> Hardware id.
It should look like something like "USB\VID_05AC&PID_12A8&MI_02" (my personal case)
This is the name of the driver you are really looking for, not the "Apple USB Ethernet" driver.
If you look it up in google you will get into a low amount of results of driver pages.
Just Download the driver from any of these pages taking care it is the same model (hardware id).
Having the driver, go into the "faulty device" again and right click -> update -> look in MY PC -> choose from a list on MY PC -> use disc -> examine -> select .inf file on the driver folder you just downloaded -> next next next.
If everything goes correctly it will say the driver was correctly installed. Restart and open iTunes. Now your usb hotspot should be working.
This will not work if, after installing the driver into the device, you get a message with some type of error like couldn't init device or whatever. The device on the list will now have a yellow triangle. This means you installed the wrong driver, so just uninstall and look for the correct one. THIS IS WHY WINDOWS UPDATE EXISTS!!!
Hope this helps.
Soren.