Atleast you got the firmware update done. Some people forget and after a few months, they have a toasty iMac.

Now with the install, if it's bailing, try this. When you boot from CD, go to the disc utility, and run the disc repair on the HDD. After running repairs, install again with a slim install. What I mean by that is go through the custom install and remove all the language junk. X11 and those tools can come later. Have you tried this already?
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MacBook 2GHz Intel Core 2 Duo w/ 2GB DDR2 RAM & 120GB SATA 5400RPM HDD
Canon Rebel XTI
Google Cr-48 Beta Laptop