So I did 3 tests today and video'd them just so you can be sure that I'm doing them right.
First i setup the sd card as described with "\OS Firmware\files\update.img" then
1) I started up the reader normally with sd card in and launched "ebook_msc.exe name "PRS-G1" um recovery" which appeared to do what it was supposed to do and attempt to load into recovery mode, however it appears as if it didn't actually load anything, then it just booted up like normal on its third attempt at the loading bar.
2) I started up the reader normally with sd card in and launched "ebook_msc.exe name "PRS-G1" um normal" which appeared to do just a normal reset. The progress bar only loaded once as would be expected.
3) I removed the SD card and then executed "ebook_msc.exe name "PRS-G1" um recovery" and the behavior was exactly the same as number 1.
I suspect this means that the PRS-G1 doesn't know what to do with the image file. Or it is missing some encryption or has an invalid checksum according to the PRS-G1. I formatted the sd card as FAT32 just for the record. Any assistance that you guys can provide would be appreciated. I'm still open for sending the unit to one of the veterans here if they want to have a go at it. Perhaps they have tools to dump the NAND flash memory?
Video link will be added here when the upload finishes to youtube
If you listen closely you can tell from the beeps when the usb disconnects and reconnects to the computer. It happens when the unit shuts down and also right before it starts up to the usable state (notice it doesn't happen when the recovery boot is in progress).