Gary, I don't think your camera is worth repairing. In fact, your dealer is trying to rip you off as concerns the firmware update. I doubt there's been a new firmware update on your camera in the past six or seven years, and even if there was, they are designed to be downloaded by the user from the web for free. Bottom line, if you want to stay with the system, I would suggest buying a "new" used camera from KEH or go to a newer dslr from B&H Photo.
As for your cell phone working just as well as a dslr, that kind of depends on what type of photography you are doing and what type of display you are looking for. For instance, I would not recommend making a 30x40 inch wall hanging from a cell phone, or a 16x20, or 11x14. Perhaps an 8x10 would work, but that really depends on your cell phone. On the other hand, if all you want to do is put thing on the web, then the cell phone will work very well--as Tom says, the camera with you is the one you will use.
Just for information, I'm a professional photojournalist (mostly retired now) and I have other professional friends who still use film cameras (mostly art or portraits) and I have a professional friend who actually used a cell phone to photograph the Super Bowl a couple of years ago. The point is, use the camera that makes you happy in your photography. If you want to use a cell phone, fine, film camera, also fine, the latest and greatest dslr that just cost you $6500 for body only, also fine, just be aware of their limitations.
Really, the amount of money you spend on a camera has no bearing on it's usefulness to you. Anyone telling you that buying a $2000 camera is stupid doesn't really know what he's talking about. I would say that in his case the purchase would be stupid. But if you want what the $2k camera offers and are willing to pay for it, who's to say it's a dumb purchase. In my case, buying a $150k Class A coach would be dumb, that certainly doesn't make the purchase of one dumb for anyone.
