The firmware is just an eeprom chip - and yes, it is flashed (written to).. When flashing a bios upgrade - it does not flash or re-write the whole chip - just certain blocks of it..
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What is an EEPROM?
An EEPROM, or electrically erasable programmable read only memory, like a regular ROM chip, uses a grid and electrical impulses in order to create binary data. However, the difference between ROM chips and EEPROM chips is that EEPROM chips can be reprogrammed without removing them from the computer, contrary to basic ROM chips which can only be programmed one time. A localized charge from an electrical field is all that is needed in order to erase the EEPROM chip. Also, the entire EEPROM chip does not need to be erased at one time, which therefore allows specific changes to be made. Other erasable programmable ROM (EPROM) chips must be entirely erased if any data is to be erased. EEPROMs are constructed as arrays of floating-gate transistors.
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So yes that key was flashed into the eeprom chip - but it could of also been flashed into 1000's of chips - and thus now being rejected by MS