The HEXUS forums have excellent Google powers, so hopefully by posting here I can help others with the issue I had.

Phone stuck during updates, with Zune reporting "Restarting your phone", and the phone screen displaying the "Download Mode" screen, forever? As per http://support.microsoft.com/kb/2484484 ?

PowerDVD 12 is to blame. Kill any background processes with PowerDVD in the name. Bam, problem solved. PowerDVD 12 breaks WP7 updates, by claiming a lock on the device when it enters download mode.