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My old PS3 (a 3.41) has a broken blu ray player. Little did I know that system updates updates the blu ray too, so I got the update loop ( PS3 System update fails, usually stops at around 60%, restarts and does the same thing over and over ).
After 12 hours of searching online, I found a solution.
Requirements:
- Another PS3/working one
or SATA Cable (if you are using a Sata Cable(reformatted PS3#1 Hard drive using PC), skip to step 9
- USB flash drive
- Screw Driver
-Looped PS3 under 3.55
Let's call the working PS3, PS3#2 and the looped one, PS3#1
Step by Step tutorial
Step 1: Make sure you know the system version of the looped PS3
BEFORE the update loop happened. Download the .pup online.
Step 2: Download the system update for PS3#2.
Step 3: Take the hard drive of PS3#1 and insert it in PS3#2, Make sure both systems are off. If it does not fit (caused by different PS3 models), Unscrew the hard drives, and switch the cases, then insert in again.
Step 4: Turn on PS3#2 and it will ask you that the hard drive needs to be reformatted and that it cannot be used. Take your USB flash drive, drag the .pup(SYSTEM VERSION OF PS3#2) in PS3>UPDATE then remove the USB after the transfer is done.
Step 5: Insert the USB in PS3#2, insert it closes to the disk drive.
Step 6: Follow the on-screen instructions. Reformat the hard drive.
Step 7: After the reformatting is done, ps3#2 will restart, and it will look like a brand new PS3 (Sony logos, asking you languages etc). This is normal.
Step 8: Turn off PS3#2, take the hard drive out, put it back in PS3#1 ( switch the cases again if different PS3 Models). Turn on PS3#1 and you will notice that it will turn on for a few seconds, then turn back off automatically. This is normal.
Step 9: Go back to your computer and reformat your USB flash drive ( or delete everything in it). Download the recovery files found here :
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Step 10: Extract the files to a folder. Take the file inside LV2diag.self File 1 and put it in your USB. Drag the .PUP of PS3#1(not the one you used before for PS3#2) in your USB. So there should be two files in there, LV2diag.self from file1 and PS3UPDAT.PUP
Step 11: Go to PS3#1, hold the power button(not the switch(PHAT) but the actual power button used to turn the ps3 on until the PS3 Turns off. You should've heard about 3 beeps or something.
Step 12: Plug the USB closest to the disc drive.
Step 13: Hold the power button again, you should hear one beep, then two consecutive beeps,
LET GO!.
Step 14: Look at your screen, if it does not show anything, leave the PS3 and the USB there for 10 min.
Step 14.1: If it showed recovery mode, unplug the USB, plug it on your computer, download the current or update with a
BDB firmware! (do the normal updating method for this, PS3>UPDATE Google it. After the update, you're done

Step 15: After 10 mins, the ps3 will turn itself off automatically, if it didn't, turn it off manually.
Step 16: Turn on the PS3 without the USB. If you did it right, You should see "SERVICE MODE or FACTORY MODE", turn off your PS3.
Step 17: Delete everything in your USB and take the file inside LV2diag.self and put it in your USB.
Step 18: Plug the USB closest to the disc drive, turn your PS3 on and voila!
Step 19: Update through XMB or recovery mode.
MAKE SURE YOU USE A BDB FIRMWARE!
Good luck and remember, if you have a broken blu ray drive, DO NOT USE OFFICIAL UPDATES!