Hi Bharath. Thanks for asking. To answer your questions:
Q: Is the firmware that gets downloaded with the targetinstaller any different from the stock linux arm image? (armel / armhf)
A: Yes. The firmware update includes customizations that are required for some features in the support package.
Q: Can I download newer images and get simulink control my boards?
A: This approach is not tested/supported by MathWorks. If you try it and have issues, your only resource would be other members of the community.
It looks like Mark had success compiling and running a binary on a newer image, but ran into an issue with "the update function".