I have run into the same problems as many here, got the second GB update/patch, rebooted, got the out of space message, and now when I try to update again, the phone never reboots. Well, I did some digging with Android System Info and found these errors in the logs:
11-16 17:47:21.543 W/RecoverySystem(240)!!! REBOOTING TO INSTALL CACHE:6cad8272f75b.OTA_Incredible_C_Gingerbread_S_VERIZON_WWE_4.08.605.2-4.06.605.3_release_222219.zip !!!
11-16 17:47:21.563 E/SystemUpdateService(240)exception trying to install package
11-16 17:47:21.563 E/SystemUpdateService(240)java.io.FileNotFoundException: /cache/recovery/command (Permission denied)
11-16 17:47:21.563 E/SystemUpdateService(240)at org.apache.harmony.luni.platform.OSFileSystem.open(Native Method)
11-16 17:47:21.563 E/SystemUpdateService(240)at dalvik.system.BlockGuard$WrappedFileSystem.open(BlockGuard.java:232)
11-16 17:47:21.563 E/SystemUpdateService(240)at java.io.FileOutputStream.<init>(FileOutputStream.java:94)
11-16 17:47:21.563 E/SystemUpdateService(240)at java.io.FileOutputStream.<init>(FileOutputStream.java:66)
11-16 17:47:21.563 E/SystemUpdateService(240)at java.io.FileWriter.<init>(FileWriter.java:42)
11-16 17:47:21.563 E/SystemUpdateService(240)at android.os.RecoverySystem.bootCommand(RecoverySystem.java:550)
11-16 17:47:21.563 E/SystemUpdateService(240)at android.os.RecoverySystem.installPackage(RecoverySystem.java:357)
11-16 17:47:21.563 E/SystemUpdateService(240)at com.google.android.gsf.update.SystemUpdateService$1.run(SystemUpdateService.java:499)
11-16 17:47:21.563 E/SystemUpdateService(240)reboot to install failed
I'm hoping this is enough for some people to start figuring out the issue. I really do not want to reset just to fix this.
11-16 17:47:21.543 W/RecoverySystem(240)!!! REBOOTING TO INSTALL CACHE:6cad8272f75b.OTA_Incredible_C_Gingerbread_S_VERIZON_WWE_4.08.605.2-4.06.605.3_release_222219.zip !!!
11-16 17:47:21.563 E/SystemUpdateService(240)exception trying to install package
11-16 17:47:21.563 E/SystemUpdateService(240)java.io.FileNotFoundException: /cache/recovery/command (Permission denied)
11-16 17:47:21.563 E/SystemUpdateService(240)at org.apache.harmony.luni.platform.OSFileSystem.open(Native Method)
11-16 17:47:21.563 E/SystemUpdateService(240)at dalvik.system.BlockGuard$WrappedFileSystem.open(BlockGuard.java:232)
11-16 17:47:21.563 E/SystemUpdateService(240)at java.io.FileOutputStream.<init>(FileOutputStream.java:94)
11-16 17:47:21.563 E/SystemUpdateService(240)at java.io.FileOutputStream.<init>(FileOutputStream.java:66)
11-16 17:47:21.563 E/SystemUpdateService(240)at java.io.FileWriter.<init>(FileWriter.java:42)
11-16 17:47:21.563 E/SystemUpdateService(240)at android.os.RecoverySystem.bootCommand(RecoverySystem.java:550)
11-16 17:47:21.563 E/SystemUpdateService(240)at android.os.RecoverySystem.installPackage(RecoverySystem.java:357)
11-16 17:47:21.563 E/SystemUpdateService(240)at com.google.android.gsf.update.SystemUpdateService$1.run(SystemUpdateService.java:499)
11-16 17:47:21.563 E/SystemUpdateService(240)reboot to install failed