I'm having the exact same issue, except I'm on a Macbook Pro (mid-2010, Core i7). I've experienced this behaviour with other bootable CD/DVD's also. I'm also running of a USB connected CD drive, since I've replaced my SuperDrive with a 2nd harddisk. I wonder if bringing the SuperDrive back into the Macbook would solve that issue.
I do believe however that this has something to do with EFI versioning..
Anyways, how were you able to boot into the Intel firmware CD with your Macbook? I'm thinking you might have an older Macbook model..
try going into disk utility and load the .ISO to a USB Thumb Drive. to do this:
open Disk Utility
select your Thumb Drive
for Source drag the .ISO to that feild
for Destination drag your Thumb Drive from the list
at boot try holding ALT you will get a list of drives. select the Thumb Drive or try ALT with the CD/DVD loaded to your external. also what FW is listed under:
System Profiler:Serial-ATA then Revision Number for that drive? if it says M3 your current no need to update.
I have a 2011 MBP with the X25-M I booted from a CD on my internal (super drive) so I know it will work as i tried the CD in my late 2010 iMac just to see if is a problem. I then tried it with my external (USB HP DVD/CD Drive) and it would not see it. booting to USB Thumb Drive i have not tried, but this should work if you hold the ALT key