Step 2: Organize files, and put on CD or thumb drive
Now use your Zip file extractor to extract the contents of the Zip archive somewhere. Once you do that, make sure the file and folder have the proper names. On the CD or thumb drive you are using, the file MUST be named su20076000_00000000, with no extension, and it MUST be in a folder named $SystemUpdate. If they are not in the proper hierarchy, the Xbox will not recognize it and it won't work. These also must be the ONLY files on the CD or thumb drive. It doesn't matter what the name/label of the CD or thumb drive is though.