try this . it worked for me
On the computer that you are doing the firmware update from, make sure that any software firewalls (such as Windows Firewall, ZoneAlarm, Black Ice, etc.) are disabled.
● Make sure that your computer is connected to the network with a wired Ethernet connection, not a wireless one.
● If the firmware update still fails, try a different setup:
1. Connect the TeraStation directly to your computer, with either a regular Ethernet or crossover cable, directly from the TeraStation’s RJ-45 Ethernet port to the RJ-45 port on your computer’s network interface card.
2. Change the IP address of your computer to 192.168.11.100 with a subnet mask of 255.255.255.0.
3. Reset the TeraStation by holding down the Init button for 30 seconds. Power down the TeraStation, then turn it back on.
4. Ping 192.168.11.150 to make sure that your PC is able to communicate with the TeraStation.*
5. Rerun the firmware update.
6. Once the update has completed, reconnect your TeraStation and PC to your network.
7. Change your IP address back to “obtain an IP address automatically”. Windows XP users will need to also make sure that DNS is set back to “obtain DNS server address automatically”.
8. Run the IP Setup Utility again and setup your IP address to work with your network.
9. You may want to log back into the TeraStation to make sure that the unit is setup the way you want it. After doing the reset, all files and folders will remain but any user or folder restrictions will have to be setup again. Also, any mapping will have to be redone even if you set the unit back to the same IP address.
* To ping the TeraStation from your PC: Click on Start, then select Run. In the run window enter "cmd" and press OK. This will give you a Command Prompt window. Type ping 192.168.11.150 and press the enter key. If your connection is good, you’ll see the words “Reply from” in response to the 4 attempted pings. If the connection is bad, you’ll likely see “request timed out” instead. If that happens, something is wrong with your Ethernet connection. Check your Ethernet cable, reset the TeraStation again, and make sure that there are no firewall programs running on the computer (and that includes the Windows XP firewall!). Restart the TeraStation and try pinging again until you get a successful ping. Then go to step 5.