Hi Mike,
It’s very important that you repair your startup drive and the permissions before (and after) any software updates (especially OS updates). You can try starting up off of your OS X installer disk and running Disk Utility to repair the drive and the permissions. This could fix your problem. If it doesn’t, or if you want to be safe, I’d choose to do an Archive and Install while started up off the Installer Disk. Be sure to select the options to save your files and applications (I forgot the exact wording). Once the old system is reinstalled. You’ll want to repair the permissions & drive again before running the Apple Software update to get to the current OS version. When it finishes updating, you’ll need to repair the permissions and drive one last time. If for some reason the update fails again, then I’d start looking at things like 3rd party memory (remove it and try again).
Good Luck,
Tony!