One good reason not to use it with the factory firmware is that the factory firmware doesn't work all that well, at least based on my efforts.
To update the firmware, download the firmware separately. Set the DIR-505 to Hotspot mode and connect your computer by Ethernet to the DIR-505. You'll then be able to log in and do the update. I did this yesterday.
The USB port has no function here - it's simply for external storage that you can access from clients.
By the way, when will the DIR-505 get a forum section of its own?