1.0x vs 2.0x is a hardware difference. 1.x equipment will NEVER be 2.x equipment.
Yes, you should be using the .04+ option for RUU. You can downgrade (both OS and/or bootloader).
Try putting your phone in bootloader first, then connecting your usb cable (ignore the directions in RUU screens - just push next each time). You may need to reboot your computer first. Also, don't connect via a USB hub - connect directly to your PC.
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Grammar: The difference between knowing your shit and knowing you're shit.
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