After extracting the file, move the MGS:PW_Demo folder to your PSP/GAME/ folder. Disable any plug-ins and if your using game categories, place this folder outside an CAT_ folder.

Also make sure that after installing 5.50 GEN-D3 that you look back at the recovery menu settings and make sure that you have your UMD driver set to No UMD- M33 and not UMD required..