I was told by a DJI dealer that my firmware must be kept up todate in order for the Phantom to be under warrenty.How can this be?

I would say they would probably be understanding if the hesitation to upgrade was due to a known issue in a new version.  However, If there is a known failure in a version of their software,  and they offer a newer version of software with said failure fixed.  Why should they then still be responsible for a subsequent failure/crash/loss if you choose not to keep the software up to date?