Chuck,
Yes, you do need to upgrade from the Admin VDC. For files, I suppose you could copy files while in a non-admin vdc, but the files should end up in their individual vdc folders, e.g. bootflash:vdc_2/. While in the admin vdc, I would copy from the vdc folder to the root bootflash, but I would recommend just copying from the admin VDC to begin with.
Yes, you can copy from a usb flash drive, using "copy usb1: bootflash:". Do a "dir ?" to see all available drives.
The kickstart files are easy to find via cisco, I would upload a screen shot, but this site doesn't support chrome. Here's a link for a 7009 :
http://software.cisco.com/download/type.html?mdfid=283748960&flowid=28582
Basically you'll need the system file, the kickstart, and the epld files, they are seperated into different areas. Do a system upgrade then install the epld.
As always, read through the upgrades docs and caveats here :
http://www.cisco.com/en/US/products/ps9402/prod_installation_guides_list.html
HTH
~jerry