You should not need a password for a software update. There may be one to access some parts of the BIOS, but I am not sure (That is beyond the end users' scope of knowledge anyway). CD would probably be the fastest. I am not too sure, I say CD because it is usually faster than USB.
Actually CD is a lot slower than USB.....it really depends on what version you are upgrading to.
If you want to re-image the desk with all the latest software (including the underlying XPe)....then you will need the console's serial number to gain acess to the page to download the image file. This must be properly burned onto a CD and cannot be done via USB....you will also need an external keyboard.
If you are simply doing a minor upgrade then just do the iPC config and H3PC software via USB
It has to do with data access speeds....CDs justs cannot spin fast enough and generally only have the one "head" (the laser that reads).
USB is fast enough that you can boot up a machine and run an OS directly without a HDD.....the new genration of SSDs work essentially like a big USB thumb drive (only better).
I know more than a few Linux hackers who can walk up to any computer and tell it to boot from their USB drive (running Linux) and get anything off any HDD or network drive that computer has access to. They simply bypass the "onboard" OS entirely.
