If the .lqu file is in a different folder than the “fw_pre” and “fw” folders, the updater will fail with the message:

The USB THUMB DRIVE is not configured correctly.
Please download the updater again and retry the update.

The zip file was probably not unzipped correctly. Try the following steps:

1. Go back to the zip file for the update, and extract the files again.
2. Copy the folder to the USB drive intact, so that all the contents are in the original folder.
3. Retry the update with the newly extracted files.
4. If the update still fails, follow the detailed instructions at:
What is the ideal way to prepare a USB thumb drive for updating original LabQuest?

See also:
My USB drive is not recognized by LabQuest. What can I do?
My original LabQuest is stuck on the LabQuest logo screen.