Well, there is updated firmware available and you can of course ask questions in Iomegas forum about it.
What i do know is that srt files have to be the exact same name as the movie file.
So if your movie is called movie-test.avi, then your srt file should be called movie-test.srt as well.
Furthermore you can check if it can read converted subtitle formats. You can modify the srt file using a freeware tool like Aegisub.