I managed to get this working on my device last night, it turns out LSUpdater will not re-partition/reformat blank drives in this device unless it has two drives in it. The processed I followed was:
1. obtain the proper firmware for the device (v1 has 1 usb port, v3 has two)
2. Extract the boot files as described earlier.
3. Make sure both drives are blank.
4. take the first drive and create a 256mb partition 1 and format it as ext2
5. copy the boot files to that partition.
6. connect the drive with the boot files as drive 1, connect the blank drive as drive 2
7. boot up the device, after a while the top led should change to solid green
8. Launch LSUpdater.exe with debug enabled (described previously), it should find the device now
9. Access the debug menu and check all options except "update boot"
10. Click the update
It should now go through a fairly long process of reformatting, copying over the firmware and installing it, when finished it will reboot and should be ready to use.