O2 sims are for post-cat use only. I've used them before for my turbo-charged car and it works fine. They are not "legal" per se but that's the point, isn't it? Even CA smog only test stations won't find them if you do your wiring in such a way that leaves the stock rear O2 sensor(s) plugged in, and wires unmolested from exterior inspection. As for how, the basic idea is that you cut the wires from the rear O2 sensor and connect those to the O2 sim instead... you can do this anywhere between the ECU and the O2 sensor for that stealth install.
If you want more info, I'd suggest that you look for other forums catering to turbo-charged cars since removing cats is a big source of power gain for them (not so for NA engines). Hope this helps.
No need for any type of SW upgrade and it should keep the SES light off if installed and working properly. Basically the O2 sim transmits to the ECU the same signal that a O2 sensor transmits under normal situation. So even if you have your cat removed, your ECU will continue to see the same signal (now from O2 sim instead of O2 sensor) as when you have working cats. Makes sense?