From what I understand, when you install an update, it actually restarts and boots the update version of the firmware in the same way that USB loader lets us boot firmware off a USB drive.
Yes, but it boots the update data from hdd0, and updates the flashes as needed, but if the flash is redirected to usb its updating the firmware currently on the usb and never touching the flash.
As soon as the ps3 restarts in update mode you can flip the power switch, when you turn the console back on after that it will reattempt the update. That gives us a chance to boot with a payload that allows the flash->usb redirection.
Is mkv support that necessary with PS3 media center avalible? it works really well...
It would be nice to have the application running on the PS3 with it's own custom interface. I use PS3MS myself and it is pretty good, however there are drawbacks. Namely scanning for new files on share drives is a little wonky. It's sometimes quicker to reboot PS3 MS in order to see new files. Also there is the lag that is takes to transcode and the occasional hiccup in 1080p playback.
A local ap could have a local buffer and use that to enable good 1080p over wireless. Also I would love to have the XBMC interface. scrolling with R/L being able to easily FF through intros, etc.