For the controller problem, you may need to unplug it, then plug it back in a couple times.
Also make sure you're using a genuine M$ controller (duke or S-controller).
To flash the chip, why don't you just select network flash? It's so easy, a caveman can do it
If using CD, you need to use the Eurasia Flashdisk. You'd need two discs. . . Eurasia to boot the utility, then another CD with your BIOS on it. This method should only be used on 1.6 consoles that can't boot FlashBIOS 3.03