Got your attention yet?
Good!
If you are going to install the new Xbox live it is a very good idea to do the following.
1 - Before you install the new Update disk, backup C: again
2 - Rename the default dashboard back to xboxdash.xbe and reboot.
Check that it works.
3 - With the original dashboard, working insert or boot the new Xboxlive disk.
4 - After the update, turn off the machine and backup C: yet again to another folder.
5 - Now boot the Evolution-X dash from a CD and rename the files back to how you had them.
Now here is the important part.
Unless you have backed up C:\ like I said above, under no circumstance reboot the XboxLive update disk with the games on it!
LET ME REPEAT.
DO NOT let the Xbox Live disk boot up in your machine again!
If you do it will NUKE the MS Xbox Live dash after producing a cryptic not able to update error.
Even if you rename the MS dashboard back, it will no longer work even if you replace it with a backup! (something else is being modified... I suspect)
YOUR only recourse is to restore from a backup of your ENTIRE C:\ partition.
I've tried this several times with identical results.
If you want to play the games on the CD you must copy them to the hard drive and play them from there directly.
Do NOT let the top level default.xbe run on your Xbox again.
PLEASE someone pin this.