Samle,
Don't worry about using the SDUpdate tool. Just format the SD card with FAT32 and place the SmartQ7 image for the 4.0 firmware directly on that SD. It sounds to me like the firmware image you have is corrupt, try to download the firmware directly from the SmartDevices site:
http://en.smartdevices.com.cn/Suppor...907/14-28.html
Let me know if this works.