Yes you can do it from a usb drive. and it does have to be renamed to $$ystemupdate
the update and your dash version has to match. if you are using the new connects dash then that update will not work. you can go here and get the newest updatehttp://support.xbox.com/en-US/xbox-360/sys...a03fb5a803927d4
I know I saw a tutorial on here somewhere this week.
Here is the tutorial I used. scroll down about half way and you will see the part you need. http://digiex.net/guides-reviews/console-g...1-emulator.html
also renaming the update to $SystemUpdate did NOT work for me I had to rename it to $$ystemupdate to get it to work.
hope that help