I heard about camera firmware update. Is it recommended update the firmware? Why? Anyone knows which firmware improve camera performance (Canon EOS Rebel XS)?
The answer is, it depends. Generally, firmware upgrades can
Importantly, firmware upgrades cannot add capabilities that the camera doesn't already have physically. Firmware upgrades cannot increase megapixel count, lens characteristics, etc.
Finally, it's also possible for firmware upgrades to introduce new bugs. These things are software, and as such, still need to be subjected to testing and debugging. You may see multiple firmware upgrades for the same camera if one patch introduces a bug and another one removes it.
As for firmware upgrades that can improve performance, the one that comes to mind (other than CHDK, which really exposes functionality) was Sigma's upgrade for the DP2 camera. The most recent upgrade reduced the lag of the autofocus algorithm in lower-than-sunlight light levels (though the camera still suffers in low light).
There are reasons firmware upgrades are issued and that is to fix flaws (most of the time) or extend functionality (some times). In all cases, a firmware upgrade should never make things worst but it is just software, so it may happen, the firmware is programmed by humans too!
Manufacturers often put out a list of fixed issues but sometimes are very vague (improves performance under certain conditions, huh?). I have seen firmware upgrades that: