I think I ran into something similar recently, in my case the device wouldn't read the SD card at all. The problem is I can't remember what the solution was...
If you put a couple music files on there, does the stock firmware recognize it, and can you play it? That may point you to either SD card issues or something else.
As a shot in the dark, if the SD card you're using is exFAT, you could try reformatting it to FAT. I presume the stock firmware's updater can read exFAT since the main firmware can, but I don't know that for sure. I believe the on-device System Settings-->reset-->format tool will change it to FAT for you. Of course, you'll need to make a backup of everything on the card before formatting it, and then move it back over afterwards.
Another shot-in-the-dark thing to try... you could try using an unmodified update file first and see if that has success or the same issue.