Do not understand this:
When you plug in your Flashdrive does the USB indication change from light gray to black?
When you look at the bottom right of the screen you will see the word USB. If it cannot see the Flash drive it will be gray and if it can see it then it will be black.
Very nice work indeed.
While this may seem a stupid question I will ask it anyway.
When you tried to do the update did you try with the keyboard and mouse unplugged and the flash drive in the USB port marked as flash drive. You cannot update with the flash drive in the keyboard port but you can load and run programs from the keyboard port. Just thought I would mention it. The fact that your mouse seems to have caused you a problem, maybe it was stopping the update.
I personally use the flash drive that i run my Gcode from the load the software. Just drop them in the root directory. Also make sure you do not have a any previous software on the drive that has been labeled .HT1 of it will fail as well.
Cheer Peter