Here's a log of my experience and the steps I took:
SD card: SanDisk 1GB
I had been messing around with my gp2x for a while, installing software that didn't work, failing to install libraries and what not. after reading horror storries about the firmware upgrade, I decided to try it anyhow.
I unzipped the firmware files ino the root dir on my SanDisk card, not deleting any of the files there.
Booting my GP2X, nothing happened, apart from the img files being deleted.
I deleted all the files, including the things there, tried again, same thing happened, no upgrade.
3rd try, I reformatted the SD with FAT32 (did not use quick format) then tried again.
I got the Firmware Update screen. Ran the patch file. And the SDL libraries installed for the first time, now everything seems to be working fine, I've got stereo music, video hasn't frozen yet, games work, and photos still pop up like they did, though there's weird cropping going on, the viewer needs a way to zoom in and out.
Problems that I've heard of: SD cards not working (try reformatting them to FAT32, or begging a friend who has a card you can borrow.) patch turning video to green... DO NOT INSTALL THE PATCH UNLESS THE FIRMWARE UPDATES, that's what breaks the video playback, once the firmware installs properly, that will fix itself.
The interface still needs a little work, but the thing seems to be working much better after 1.01