I didn't mention it, but I extracted them in my pendrive and they're not into any folder:
/ (root folder of my pendrive)
|
|- install.inf
|- 82UP
|- C82E.cab
|- C82S_v11.cab
|- COU.pku
|- DEU.pku
just thought i'd try and offer my advice, i too was having problems with the usb error 10 message on a fat 32 4gb freecom pen drive, i read a few posts to try and fix to no gain till i tried the following, dont know whether this fixed it or was coincedence. make sure it is not a quick format but full format of the drive just in case

also be aware if u arent there is the new 5.4.11 version out.
i read that you arent supposed to copy/drag and drop but actually 'move' the files to the pen drive. if u have vista open the folder where your files are, providing u dont already have the menu bar listed press 'alt' to show it then go to edit > move to folder then wait for the move.
the next thing i did was open the install.inf file and took note of the order the files were listed as to which would be opened first. i changed the order of the files on the pen drive to that in the list and had file '82UP' at the bottom. close the install.inf file then remove pen drive.
i took to car, put pen drive in, key in ignition, turn to MAR position and then said outloud repeatedly, 'please dont fail' just for luck, low and behold it worked
be aware though when it says updating the radio will come back on and the updating message will disappear, dont take this as completed, just sit and wait, dont touch ANYTHING in the car, after approx 5 minutes i had the 'update complete' visual and audible message.
once u have that you're done.
dunno whether this will work but this is what i did.