[knc1]

The exact, no variations allowed, order is:

1) Remove USB storage cable
2) Press and hold power button for 20 or more seconds
3) Release power button
4) At very first character on the serial port line, press and hold the 'Enter' key on your PuTTY keyboard
5) Release when you see the recovery menu
6) Connect Kindle USB cable to PC
7) Choose: E (or e IIRC)
8) Copy Amazon update image file from PC to top most visible level of Kindle USB storage
9) Copy the Amazon update image file from the Kindle USB storage to another name or place.
Now compare the two, or compare the md5sum of the two - they should match.
Repeat 8 and 9 until you get a read-back copy that matches the original. (Since you obviously expect USB storage to be flaky to have done what you did.)
10) Do the "Safely remove" dance on your PC
11) Disconnect Kindle USB cable from the PC (pause a few seconds while Kindle OS un-exports USB storage)
12) Press Q (or q IIRC)
The system may or may not exit to another menu at that point, if it does, choose "Exit"
If the Kindle has not rebooted by this point, do the "Press, hold 20, release" of the power button.

Note:
*) The Kindle storage access USB cable to PC was removed after safely transferring the file
*) The normal "cold start" reboot process will take care of testing (correcting as required) both user file systems and then will install the image file found on USB storage - it is scripted that way.
If the system appears to hang on the "tree while loading" display, it is trying to recover one of the file systems. This may take days, put on wall charger and wait.
*) At no time was: 3, 4, I, O, U, M, or D ever selected in the above steps.
Do the above, without any variation, changes, additions or deletions and it should all "just work".

If you did have to power it from a wall charger while it repaired the file system, assume the Amazon image file on USB storage was trashed in the process of recovering the file system.
That is: repeat all of the above again.

Note: You will see on the serial port a message from the system boot procedure when it discovers the Amazon image file and messages about what it does with it.
If the image file was trashed (or never correctly stored) you may or may not see any messages about the situation (notice in your log file you never saw those messages).