Ok, so I managed to get the update button to work, here's what I did in case anyone else out there still has a unit with older firmware.
1- burn to a CD-R using ISO9660 + Joliet (I used imgburn), put the two files on the root of the CD
2- set the disc name as "firmware"
3- make sure the CD is closed, no further writing possible
4- put the CD in the unit, then turn the car off again
5- start the car, ignore the error message and then select the standby source, back, tools, information, software
I think the most important point here is 4; you have to boot the head unit with the disc already in the drive. If you go to the software information screen and then put the disc in, the update button stays greyed out. Similarly if you go to the software information screen to check the existing firmware version, then switch back to radio or whatever to put the disc in, when you go back to the software information screen it will still be greyed out.
I have no idea if my other points made a difference, but that's what worked for me.