With the older FW, the module will show the T1 ports in alarm. It will show LOS, RED, and BLUE alarms. Since BLUE is an all-ones signal, BLUE and LOS (loss of signal) are mutually exclusive. Once you upgrade the chassis FW the module should function properly.
All of the ATLAS 550 chassis support the C.09.04 Firmware. When you download the ZIP file containing the FW, it will also contain instructions for transferring the FW using XMODEM as well as TFTP (TFTP is faster but requires a TFTP server program).
Hope this helps,