The current 1.6.2 install CD will have a 1.6 splash screen and should say "Welcome to OzTiVo" even if you do not do the update to the installer when imaging the drive. It certainly sounds like the wrong installer image to me.
Just to clarify: You did get your install image from here?
http://www.oztivo.net/oztivofiles/images/
And you did get the Philips 1.6.2 20080604 iso image (94MB in size dated 4th June 2008 23:01) that is in that directory?
In answer to your question about USB to IDE converters: No you can't, sorry.
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