A couple of notes and thoughts on updating the firmware. It has been mentioned above that this only works when the USB drive has been formatted with the FAT file system and not FAT32. However, the FAT file system has a maximum size of 4G, so if your USB drive is more than 4G then you cannot format it as FAT and it sounds like that will prevent it from working.
If you can’t find a USB drive that works, the manual also has instructions for connecting a computer directly to the USB service port of the projector and transferring the firmware file that way. The service port is mini USB, instead of the more common micro USB, so it might take a little effort to find a cable that will fit (a lot of cameras used mini USB, so if you have a cable for an older digital camera that has a good chance of being what you need).
I didn’t try the direct connection method, but for me the firmware update worked on the first try with my 4G usb drive.