I'm having this exact same problem, the box won't update and doing a hard reset means you can't get back on the device as it insists on updating before continuing with the set up, which then crashes the box.
Ok, so through some trail and error I've since managed to get past the update part and on to actual box, the update still won't go on but the box is usable again.
So here's what I did, first off make sure you've put your WiFi password so it's set up, then press back/home once it says it will apply the update, this should get you back to the WiFi list.
You may be able to skip to the second set of inputs here but this is the order I went through it all so probably best to recreate it.
From here press:
1: Home x5
2: Fast Forward
6: Fast Forward
Now in this screen press:
1: Home x5
2: Fast Forward x3
3: Rewind x2
In this screen do a factory reset, once it's done go through it all again and check to see if the update server is set to "Beta" it may already have been set to this before the factory reset, you may have to hit "Cycle update server" and reset before it shows, I'm not sure, all I know is it needs to be on that as it can't pull an update from it.
Now return to the setup (Think you can mash home to get there) attempt the update and it should chuck out an error code with two options "Check network" and "Cancel", hit Cancel and it will ask for your Now TV username and continue set up as normal.
I don't know why it won't update and I have no solution for it, but this will at least allow you to use your box again.