Justin. I hate to say it, but the update does not play well with rooted phones, period. The only way to solve the problem is to flash an SBF file using RSD Lite. I believe there are some instructions on this in the root subforum and I know I've seen instructions on other sites as well. best bet is to back up all of your apps with titanium backup, flash the SBF to go back to out-of-the-box Froyo, and then get the update. The reason I suggest using Titanium is that you can quickly and easily refresh all of your apps with their saved info once you re-root without needing to download from the market all over again. Other than this, you're basically stuck with Froyo