Hi, welcome to the board. In answer to your first question, do NOT upgrade your firmware. There are too many different firmware specifically designed for different players so the chances of getting the right one is unlikely.
You will most likely brick your player.
As far as the second question, I highly recommend you follow the instructions posted here:
How To: Removing a Memory Hack
Format errors with AMV files are generally the result of a hacked player. The memory shows more than what there really is. When you copy files to the player, everything that fits into the real memory will play. Anything over that is a ghost file that doesn't really exist.
Hope this helps.