Linux runs on the router, so when you log in the telnet shell, you're using Linux. I think that the stock firmware includes a /tmp directory which is a RAM disk, and the dd command.
Another method to prepare the file would be to use any Windows hex editor application to remove the first 1310720 bytes of the file.
The commands copy files between a USB flash drive plugged into the router to the router's internal flash. First you would copy out the factory contents as a backup, then copy in the new OS.