I only use UDF Format, I can't see that making a difference but worth keeping in mind as a last resort. FAT is supported but the comments about formatting on the camera remain.
Use the camcorder to be upgraded to format the disk (I think this is the problem).
The root directory, where you are placing it should be fine. I.e. the one at the top level on the device.
Note the warning about exFAT. That being so you should put it under the XDROOT directory.
Is it possible your SxS card is not formatted as UDF or FAT?
Can you see an XDROOT folder on the SxS card?
How are you getting the upgrade file on to the SxS card? I use the SBAC-US20.
Follow the other warnings about not leaving other media in there.
That should work. I've never had any problems but then again - I've not upgraded very often.