[Milhouse]

So does that mean I can't just copy SYSTEM to wherever I have it (NFS folder or SD card) or will it be OK even though it contains the firmware?

The firmware will only be extracted from the SYSTEM file if you drop the SYSTEM file into the Update folder (along with KERNEL and MD5x2).

If you are updating manually, then you will need to copy the firmware files from the 3rdparty folder to your SD card, along with the new kernel.img. And update the SYSTEM file in your NFS-mounted /system folder.

Though if you have already switched to the Rbej builds you can just use the Update-folder method as his build has support for NFS/SMB/USB users. Since you are booting over NFS, just copy the SYSTEM+KERNEL+MD5 files to the /storage/.xbmc/.update folder on your NAS and reboot the Pi which will find and apply the update.

I would advise that you enable the media check feature just in case your Pi decides it's a good time to trash the SD card...