A1. I don't *quite* recall the cut-off point, but either 5.10.x or 5.11.x *should* be okay as far as the "OTA Block" KUAL button goes.... But....
A2. The issue is that you're not going to be able to downgrade to the factory image, because you're already running something > 5.6.0, and I don't think there's an exception for the KT2 on that front. (Someone will chime in if there is, and/or check the wiki).
Which means you'd have to do it by hand, over serial, in diags. I think there's a fairly recent success story about that somewhere around here, though.
A2b: Which means the path of least resistance, since you've already cleared the hurdle of JB via serial, would simply be to stay on your current FW version, and just mangle the OTA process to prevent updates. There are a few "recent" threads about the various ways you can achieve that (mainly by mangling the various ota binaries/scripts/upstart jobs one way or another).
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