I wasted 3 CD's by just burning the file.
I then tried burning the entire '$SystemUpdate' folder to the disk, and it installed automatically when I started up my 360 (with the disk inside).
I don't know if it makes a difference, but if it gives you the option to give the CD a name (by standard it'll be the date), I named it $SystemUpdate.
Hope this helps, I gave a CD to a few of my friends.
=)