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three things
1 -> You didn't need the USB connection for upgrading
2 -> 1.2 is pretty old firmware, you should update to 1.5/2.0 (and it may correct your USB problem)
3 -> When you insert a SD card inside the Cybook, the eBooks, Music and Picture folder are automaticaly created
Have you got a 200Mhz or a 400Mhz version?
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