Can you make milk chocolate bars with fresh milk or cream?

I know you can't use fresh milk or cream. Any water introduced to your chocolate would cause it to start seizing. Basically the cocoa powder would start hydrating and clumping up. If you do it right, you get ganache or modelling chocolate. If you do it wrong, you get weird curdly chocolate and sadness.

As far as milk powder tasting bad... I really don't know the answer except to ask how you tasted it? It definitely tastes different (very concentrated and cooked) on it's own, but should be fine in a hot cocoa mix or chocolate bar, I'd think.

One thing you might look into it getting a full-fat milk powder, since most of what you'll find in stores (in the US at least) are skim milk powder. That might be part of the weirdness you detect.

The other thing you might look into is trying to find freeze-dried milk. My understanding is that most milk powders are made through an evaporation process, which would necessarily cook the milk and make it sweeter. Some people seem really averse to the "cooked milk taste," while some people (like me) enjoy it. Freeze-drying would perhaps do a better job of preserving the fresh taste, but I really don't know. I don't think I've ever had it.