Ok, since plenty of people are having trouble doing this, I'll take a few minutes to clear things up...
Rebug v1.0.1 can be installed from the XMB (System Update) Some people CANNOT install from the XMB (Older PS3 models)
INSTALL REBUG FROM XMB:
1) Unzip the Rebug PUP onto a FAT32 USB drive. The update needs to go in PS3/UPDATE <- ALL CAPITALS
2) Turn on your PS3 (without JB) and insert your USB drive
3) Go to 'System Update' in the settings menu
4a) If your console finds the PUP - follow the onscreen instructions and you're done!
4b) If you console DOES NOT find the update ('No applicable data found...') then you need to install via SERVICE MODE (read on)
INSTALL REBUG FROM SERVICE MODE:
1) Start your console in Service Mode (PSGrade, E3 Card Reader, WHICHEVER DONGLE YOU USE TO DOWNGRADE) and remove your dongle once in service mode.
2) Copy LV2DIAG.SELF (FILE 1) & the MODIFIED v3.41 PUP to the ROOT of your USB drive
3) Power off your console (power button) and insert your USB drive into the FAR RIGHT USB PORT
4) Power on your console - you will get a blank screen but should see the HDD & USB drive flicker showing data transfer. DO NOT SWITCH OFF!
5) When complete, the green LED will flash and your console SHOULD turn itself off. If not, wait 2-3 mins and then power off using the AC switch
6) Once complete, replace the MODIFIED 3.41 PUP with the RETAIL 3.41 PUP (can be found in downloads section) & repeat steps 2 - 5
7) Once this is compete, replace the RETAIL 3.41 PUP with the Rebug 3.41 PUP & repeat steps 2-5
8) Remove your USB drive and replace the LV2DIAG.SELF file with FILE 2 from the DGF pack and insert back into the FAR RIGHT USB port on your PS3
9) Switch your console on, it should switch itself off after a few seconds (Red LED - Standby) IF NOT - Power cycle the AC and try again.
10) Once the PS3 has powered off, remove your USB drive & cycle the AC power once more.
You now should have v3.41 firmware with Debug options enabled!
IF YOU CANNOT DOWNGRADE YOUR PS3 (NEW CECH-25 SLIMS) THEN THIS GUIDE IS USELESS TO YOU - PLEASE DO NOT ASK ME HOW TO DOWNGRADE THESE CONSOLES.
YOU DO NOT NEED TO JAILBREAK YOUR CONSOLE TO RUN REBUG - JAILBREAK IS ONLY NEEDED TO RUN BACKUP MANAGERS/HOMEBREW ETC
For a lot of people, installing Rebug from XMB doesn't work.
DO NOT INSTALL IN RECOVERY MODE!!! YOU WILL GET ERROR 8002F2ED (but your console will be ok!)
Here's what to do (tested myself several times)
1) Downgrade with the modified 3.41 PUP (PSGrade, PSKey etc)
2) Then downgrade using the RETAIL 3.41 PUP (While still in service mode)
3) Then using the same method, downgrade using the Rebug PUP
When complete, your console MAY NOT switch itself off (mine didn't) - wait for 2-3 minutes then turn off using the POWER BUTTON - NOT the AC switch
Finally, replace the LV2Diag.self on your USB drive to exit Service Mode - once your console turns off, remove your USB drive & cycle the AC power.
Your data WILL NOT BE LOST - your profile will be restored once you setup the system time etc.
Enjoy your Rebugged 3.41 PS3!!!
Here are some payloads to use with Rebug (USBHID bootloader)