Firstly, you mention you 'extracted the firmware'... but you might need to re-do this in a specific order.
Delete the contents of the PHTSYS directory, but leave the partition intact.
I'll assume that you have downloaded the firmware from the relevant PhatHack download links, and that you have chosen the Kenwood one v13.01.
If you haven't, please do that first.
Then:
1) Open up 'system_0x02ff_13_01_RC.zip'
2) Extract the files:
'linux'
'ramdisk'
'linux.sig'
'ramdisk.sig'
onto the PHTSYS partition, in the order listed!
3) Extract the remaining files onto the partition. DO NOT re-extract the files listed above [in case windows changes where they sit on the disk]
4) Extract the contents of 'daemon_0x02ff_13_01_RC.zip' onto the PHTSYS partition
5) Extract the contents of 'headunit_0x02ff_13_01_RC.zip' onto the PHTSYS partition
6) Extract the contents of 'player_0x02ff_13_01_RC.zip' onto the PHTSYS partition
I'll assume that the PhatBox already has the correct firmware loaded onto it.
So:
7) Delete the file 'forceupdate' and 'forcesettings' from the PHTSYS partition
Now, at this point you might want to fire up PMM and just check that it sees the DMS without any issues. Don't create a playlist - PMM will create a default one with the PhatNoise startup sound. Save and Eject to make sure the 'new' playlist is saved on the DMS correctly.
Assuming everything goes smooth up to this point, let's turn our attention to the PhatBox.
1) With your engine off, make sure there is no DMS in the PhatBox and then disconnect the cable from the back of the PhatBox and wait a couple of minutes.
2) Re-connect the cable
3) Insert the DMS into the PhatBox
4) Turn your ignition to power up the Head Unit
5) Use the Head Unit to select the PhatBox
If this hasn't kicked it into gear, just take a look at the lights on the PhatBox - make sure we don't have solid green, and at there is at least some activity.
If necessary repeat the above, waiting at least 30 seconds before removing the DMS from the Phatbox when you do.
If the repeat fails, then stick the DMS back into the Cradle and re-copy the 'forceupdate' and 'forcesettings' files from 'system_0x02ff_13_01_RC.zip' onto the PHTSYS partition and repeat the instructions above, twice if necessary.
If after all this we've gotten no-where, we can still try something else - so don't panic!