are you booting from a working chip or from the softmod?
if your booting from a softmod you need to put the chip on the lpc header before you can flash it..
I would personaly do that when i see that its starting to boot the softmod bios should have been loaded to memory by then. The chip has to be connected fully so its probably best to have d0 connected and bt connected to ground on the chip so its always on. then when the xbox starts to boot properly attach the chip to the lps header,
then just flash as norma. (with the correct 1.6 bios)