I successfully updated my E-M1 firmware recently, but do recall seeing this message. I had the 12-40 PRO attached, and firmware updates were recognized for both the camera and the lens. After installing the camera update, I then tried to proceed with the lens firmware update, where I saw this error message. After disconnecting the camera, reconnecting, and restarting the Olympus Updater application, the lens was again recognized as having a FW update available, where I could then successfully run the update.
This was on Windows 7. "Storage" was the selected USB connection mode.
Be aware that in updating to firmware v. 4.0, you will lose all your custom E-M1 settings, including the date/time, file naming options, etc. But I think this update is very much worth the time you'll have to spend in getting the camera configured back to the way you want it.
-larry