How to update the LG GT540 Optimus to the lastest stable Android version? How can I update my LG GT540 Optimus to the latest stable Android? Is if safe to update, or I could brick my phone? Or it does it by auto? How are the installed softwares (from Android Market) updated? I have to do manually  or is it done automatically?
Backup your phone


this is important if you wish to keep any data from your phone. You will have to restore backed up data (such as apps) after you update. The only way to update to the latest software is to erase your device, so backup whatever you do not want to lose.

Extract the .zip file, which you can download from this AndroidForum thread or this XDA thread. Open the folder and install MSXML 4.0 SP3 Parser (msxml.msi).
Once that has finished, install LGAndroidDriver_WHQL_ML_Ver1.0_All_Win7.exe which are the drivers so your computer will recognize your phone. Windows XP Users download this driver, extract the contents anywhere (e.g. desktop), right-click on the 'android_usb.inf' file and click 'Install'.
Next, open KDZ_FW_UPD.exe
(i) Change 'Type' to '3GQCT' THIS IS A MUST, THE UPDATE WILL NOT WORK OTHERWISE AND YOU MAY BRICK YOUR PHONE
(ii) Make sure 'PhoneMode' is set to 'DIAG'
(iii) Browse for the 'V20B_00+Fastboot.kdz' file.
Prepare the phone by enabling USB Debugging by going to Settings>Applications>Development>Enable USB Debugging and connect the phone to the computer via USB cable and wait for the drivers to install for the phone. Sometimes the computer still won't recognize the phone, if this is the case, try this: Windows Vista and Windows 7 users press start and type device manager (Windows XP users right click 'My Computer' and click properties, then click the Hardware tab and click Device Manager) then locate LGE Android Platform Modem, right click it and click disable. Accept any warnings that come up. Also, make sure you've disabled Mass Storage Mode on your phone. To do this, go to Settings>Storage>Enable Mass Storage, and untick the box.
Click 'Launch software update' and do not use your computer until the update is complete. The update will take roughly 10-20 mins to complete.


This method was found in the AndroidForums. There is also a Youtube tutorial on rooting the GT540.

Bricking is always a possibility when modifying software that doesn't come directly through the intended channels

That said, the methods here have been proven to work and your risk is significantly less if you perform these steps correctly. 

Let us know if you need any help!