Connect in USB mode. Look in the root of your memory stick (where you have the PSP folder and the UPDATE.PBP file). There should be a file named "msipl.bin".

Then Copy the "msipl.bin" into the folder called "msinst" that was extracted from the ZIP file. In the Command Prompt, switch into the "msinst" folder... wherever you put it. Type "msinst X msipl.bin" where X is the drive of your PSP. For example, my PSP is connected at O, so type "msinst O msipl.bin".

You should see a prompt like this. Your setup may vary from each computer. As long as you get the "Are You Sure? [Y]" prompt, you know that the msipl.bin file is OK.