I don't think you should need to copy the Dsystem folder, it shouldn't hurt usually, but some versions of the firmware need to create their own dsystem folder.
It should go like this:
Either run the upgrade .nds file, or if you're using the other method, hold the button combo to go into upgrade mode with the cable attached to slot 2, then run the upgrade batch file.
Wait for it to install, then turn your DS off and on again, with the button combo to either quick or full format the DS. It won't be recognised by windows until you format. Note: Do not use windows format, use the button combo format.
Then turn your DS off and on again. Dsystem should be created.
Then copy xmenu.dat onto the route of your cart (not into the Dsystem folder).
Next time you turn it on it should boot into the menu. You're free to add roms and junk to your cart.