Hi Swizzy, Thanks for the detail information. I have followed the instruction. But still no window pops up when flash drive is inserted. I find there is no way to delete any file under SysExt: folder. Yes, it's an internal drive. It has been formatted in the console.
One thing I should mention though is I have an Xbox 360 S 4GB. I had a working internal hard drive before. After I replace the old drive with the new 1.5TB internal drive, everything seems to be still working fine. Avatar seems to be intact. I am able to install FSD and create profile. This makes me think I don't need to do system update/install avatar for the new hard drive because it's already in the internal 4GB flash. But this contradicts to what BL4K3Y said on page 6 "System update data will only be installed to HDD1".