Ahhhhhhh... finally.
what I did to create the OS disk in case anybody faces the same problem:
Open a terminal session
become root: sudo bash
unmount the floppy device (you can find out which device it is using the mount command):
umount -f <floppy device>
Create the disk from the downloaded image: dd if=<os image> of=<floppy device> voila - an Emu boot disk.
Upon inserting the disk into the E4X it asked me if it should update the flash, which I answered with yes and now the unit boots just fine 
How can I find out if the unit has 2MB flash so I could update to EOS 4.62?