Just to clarify, in the boot menu you may see both UEFI and non-UEFI options for the USB stick containing the DiagOS install. You need to choose the UEFI USB. Of course, in order to see any UEFI boot option, UEFI has to be enabled elsewhere in the BIOS.
I wouldn't panic yet. I don't think anyone has ever confirmed a defective device. I just updated a 640 (Wi-Fi-- not N) which logged i2c retries to the NIC until everything was updated.
What BIOS version came installed? Does the unit reboot if you remain in BIOS for 5 minutes?
This is the process I boot up the DiagOS installer:
1. Flash the USB according to Dell's instructions:
sudo dd if=./diagos-recovery-x86_64-dellemc_vep1400_c3538-r0.3.43.3.81-27.iso of=/dev/sda bs=1M
2. Plug in in to USB1 port on the 640 and then select "UEFI: Lexar USB Flash Drive" from the Save & Exit tab. I've also tried with the "UEFI: Lexar USB Flash Drive, Partition 1" and it boots as well, and gives same results.

3. Try to install to eMMC but it fails the same way each time:
Code:
Failure: Unable to install image: /diag-installer-x86_64-dellemc_vep1400_c3538-r0-3.43.3.81-27-2022-12-08.bin
This should be not reachable unless something wrong is there!!!!!
When I'm in the ONIE-RECOVERY shell, I can confirm the system is booted as UEFI.
As to your questions:
* BIOS version: 3.50.0.9-13

* The system does reboot after 5 minutes but I can stop the watchdog using
i2cset -y 1 0x22 0 0 b.
Other things I've tried based on reading this thread:
* Updating BIOS/CPLD/PIC using the FW updater in the live USB DiagOS but to no avail.
* Factory reset by holding the outside reset button.
* Trying to switch to a different BIOS slot using the S1 button on the motherboard.
* Holding both S1 and S2 buttons for 10-15 seconds for some kind of reset.