I struggled some time with this, my error was I used the wrong boot.img file (i used the one on the root of the cd first, the peg2 img ). After using the right one, its updated nicely.. All looks fine !! Thx !!

Used the command:

boot hd:\boot26.img (i renamed it this and copied it to the boot: partition) bi dh2:boot.iso (renamed it boot.iso for easy spelling). Then it booted and it got installed, nice!