Hi
You find the correct solution, it's safe to change the key to 0 for that specific registry key.
The registry key, HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\PortableOperatingSystem, make the system think it's on a portable storage, so the update just block, but as you tell, it's not a portable storage you have, and even if it would be, you can upgrade Windows that is on a USB stick that way too, so it's safe.
I can't confirm if the update itself will be ok, but for that registry key have no fear, it's safe to change.
Thanks
Philippe