Can x86 Instruction Set be changed with microcode update?
That depends completely on the CPU. Some CPUs don't use microcode at all. Some CPUs use a mixture of hardcoded instructions and microcoded instructions. This mixture can be anywhere between almost all hardcoded and only a few microcoded instructions to almost all microcoded and only a few hardcoded instructions.
For CPUs that have microcode, the microcode could be either modifiable or not modifiable.
If all instructions are microcoded (there are no hardcoded instructions) and the microcode is stored and loaded in such a way that you can load a different one at will, then it would theoretically be possible to load microcode that implements a completely different instruction set.
However, the feasibility of that still depends on the internal design of the CPU. An extreme example would be the Transmeta Crusoe and Efficeon CPUs. These were 128 bit VLIW designs internally, and in order to execute x86 code, they had a software layer called Code Morphing Software, which was essentially an interpreter and JIT compiler from x86 to the internal VLIW code. The Code Morphing Software was running entirely in the standard RAM. This makes it sound like it should have been very easy to just load a different version of the Code Morphing Software and turn the CPU into an ARM or PowerPC or SPARC or MIPS CPU, right?
Well, not according to Linus Torvalds, who worked for Transmeta at the time. He was asked this exact question, and his answer was that the internals of the CPU are so specifically optimized for interpreting x86 code that writing a CMS implementation for, say, MIPS would be no different (and no more performant) than simply writing a MIPS emulator for x86 … which already exist anyway.
On the other hand, the CPUs of the Xerox Alto, Dandelion, Dolphin, and Dorado workstations were explicitly designed to be microcoded for different use cases. They would run completely different microcode depending on whether they were running Interlisp, Smalltalk, or the Star system. For example, the Smalltalk system implemented the most important instructions of their VM in microcode, so that in some sense, the CPU could directly execute (parts of) Smalltalk byte code. You could say that when running the Smalltalk system, Smalltalk byte code was the ISA!