We want to set the iteration path to a default our tree structure is as follows
Root
So we want it to prefill with the latest (v10.3) on creating each new work item.. and in future when we add v10.4 it would then pre-fill that instead.
Are either the default or dynamic update to new iteration paths possible?
It is not possible to have a rule in your work item to default the iteration path. That said, in TFS11 iterations are first class citizens: they have dates.
The product now knows what is the current sprint/iteration for a team. If you create a new work item in the context of that team it will default the iteration path with that iteration.
See more on teams in TFS11 at http://msdn.microsoft.com/en-us/library/hh528603(v=vs.110).aspx