Your upgrade should work fine using a USB drive. If you are doing that, maybe your files were not properly unzipped. (weird...).
Pandora on the Web plays 64k AAC+ for free listeners and 192k for Pandora One subscribers. All in-home devices play 128k audio, and mobile devices receive a variety of different rates depending on the capability of the device and the network they are on, but never more than 64k AAC+. So you will get a lot more quality with your receiver than with any other device unless you were a Pandora One subscriber.