Originally Posted by ichris
Are you sure that you have the Firmware PUP in the correct folders on the usb? ( PS3/UPDATE/PS3UPDAT.PUP )
Also, try installing through the recovery menu.
That is good advise but if he has 3.56v1 then that firmware has a known bug and a non original to that ps3 hdd cannot be installed(the only possible way MIGHT be with a hardware downgrade). I'm guessing that is why the op bought the ps3 for cheap because the seller knew the ps3 was problematic.