The firmware not updating is very strange. It almost makes me wonder if someone has modified the script that does this during the startup. But, the factory reset via the buttons should still work.
As a last desperate attempt if nothing above works, format the data partition when it is connected to the PC. This will force it through the setup process again including updating the firmware. I don't really expect the update to work, but it is something to try.
Otherwise, return it as faulty.
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