First, try another PC. Perhaps you will be luckier there, and the PC will see the Reader. If the PC flasher recognizes the Reader, you should be able to install the update.
Second, if you had the PRS-500 updated to the latest EPUB-supporting version (2.XXX), you probably will not be able to recover. You can still try, what have you got to lose.
Third, you can try using a serial port connection and burning the Fsk filesystem manually from the command prompt (you would have to get it on an SD card). Here is
some info you may find useful. More (in Russian)
here.