Hmm. The USB connection for firmware updates does have a tendency to be a bit temperamental.
I've copied this thread to the sprint hero section so that some sprint hero users see it and can help you figure it out
Also, although it says it on the firmware program, installing this will wipe all of your data from the phone. If you're giving the phone to a friend that's probably not a concern, but we can help you backup the data if you want.