Yes, in order to do a release upgrade on the HMC, you can choose to download ISO-files to create your own bootable CDs/DVDs, but you need to burn 'em on another installation (e.g. Windows PC with Nero), NOT on the HMC itself.
The DVD/CD drive on the HMC will only allow boot from CD-R or DVD-R disks, no CD-RW, no DVD-RW, no DVD+R or DVD+RW!
The backups (e.g. "BackupCriticalConsoleData") are made on DVD-RAM UDFS disks.
HTH,
p5wizard