Check two things regarding the FM radio:
While the radio mode is active, look in the upper right hand corner next to the battery icon. Is the device “paused” (no audio), or is the “play” icon showing?
You can change the frequency steps from 200 kHz, odd intervals (North America / US) to 50 kHz intervals (0.05 MHz) (World). Here in the US, either mode will currently pick up local broadcasts. As a footnote: many fitness clubs have TV audio fed through small FM transmitters for patrons to watch while trying to beat that treadmill into submission. Pity, many of those transmitters are off-band, broadcasting on the even frequency steps (they were not set up properly). If you have crappy audio in this situation, the Sansa can be set to “world” for better sound.
The FM receiver in the Clip Zip is a new type that can feed digital output to the Clip-s processor, as opposed to the Clip / Clip+ which uses the analog output exclusively.
I think the gain level of the FM could use a little tweaking, as it’s a little “hot”. If your FM has ceased following the firmware update,first try checking the regional settings under Settings > Radio options, and see if teh device is muted / paused during playback. You can try reinstalling the current firmware manually, or revert to the previous version to see if operation is restored.
Sometimes, things do indeed break. For this situation, contact Support, as the little guy does have a warranty.