Xbox260 cannot update using USB

Hi, did you already prop out the update after the instruction on XBOX.com? You have to prepare the USB stick correctly beforehand and only copy the folder with the character to the root directory. The USB stick must be FAT formatted

https://support.xbox.com/en-US/xbox-360/accessories/using-usb-flash-drive

and

https://support.xbox.com/en-US/xbox-360/console/system-updates-info

www.xbox.com/system-update-usb here is the link to update by usb if this dosnt work let us know why u cannot download via the xbox

No, 1st is factory refresh. If the console is connected to the network it will update without usb. The system update via usb OSU1 file is for when the console is not connected to a network and cannot be used if the console is enrolled in a Insider preview.

Using a 2TB Western Digital Passport Ultra with no issues formatting to be used as storage. However, I did notice one caveat about this System update with regard to the newly allowed large USB storage: These devices cannot be formatted as "System Storage"
which means they cannot hold "System Updates", smaller (system cache) title updates, etc. Basically, these larger USB storage devices cannot be used without a 360 Hard Drive, the 4GB Internal Storage, or some other 32GB USB device to act as the "System Storage".
So using a 2TB USB Drive instead of a 360 Hard Drive isn't going to work too well.

I guess they are limited to simply holding the game files and saves, which is great of course, but I was hoping that they would be able to act as "System Storage" as well, similar to the way the 32GB Flash Drives can.

That code is still an update error code, if you cannot get the update wired or wireless please update via USB