The software upgrade will not fix the "shift flare" and the delayed "drive" engagement. This is the valve body in the transmission that is defective. The earlier design was flawed and Volvo (Aisin Warner) has since come out with a redesign. The part is about $900.00 and labour is about 4 hours. Do a search on this forum. I have pictures posted of the 2 different valve bodies.
The software upgrade does need to be done with the new valve body install so try it first, but you most likely need this repair as well.
Here are some links to more posts on the subject: