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How can I use a PS3UPDAT.PUP file downloaded from the Playstation System Software site to update my PS3?

Copying it to the root of a USB flash drive doesn't seem sufficient. Does it need to be in a particular path?

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You have to place it on your USB key in a /PS3/UPDATE folder. Then, go in Settings | System Update and choose Update via storage media.
The file should then be detected and the system updated.
You can find this information on Sony support site here.

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