FourJacks, I would not worry about your firmware at present. I suggest you download MP3 Player Utilities
HERE You are going to need it to convert video etc.
When you have installed it connect your player to your PC, then open the MP3 Player Disk Tool which is part of the MP3 Player Utilities. Go to the Partition Encrypt tab and move the slider all the way right and apply which will format your player. Once that is done move the slider all the way back left and then format again. Your chip should now be recognised as it's true size.
Then try the record function again.