Ok I need to start by saying if youre doing it my way, you need another hardrive and a usb stick.
If you dont have either, then youre outta luck or you gotta try the other ways posted around the forum. I will say that i just found out this has been posted up before on the us ps3 forum, but i have elaborated on it and i did find out the solution myself before i found that post.
Anyways HERES THE STEPS:
1) Download the ps3updat.pup file off sony's website. You need to make a folder in your usb stick called "PS3" and within that folder, a "UPDATE" folder, it must be in capital letter for the name. Then drop the ps3updat.pup file into the update folder. (If you have problems with this step, visit http://us.playstation.com/support/systemupdates/ps3/pc_update/index.htm
2) Plug in "New/Temporary" hard drive into ps3 (For Slim - Theres a cover under the ps3 that you pop off and theres a screw that you have to screw off in order to access the hardrive For Fat - I think theres a cover on the side, im not sure i dont have the fat)
2) Boot into safe mode (Press and hold onto the power button untill you hear the double beep, then let go of power button), follow on screen instructions, and select update firmware. Follow the on screen instructions and insert your usb when prompt to. Let it format your temporary hard drive and let it install the firmware. When its done installing the new firmware on your temp hardrive and gets to the language selections, internet settings, etc screen, you can choose to continue and finish them off or turn it off at this point.
3) Now with the ps3 off, put back your original hardrive in and boot up your ps3. Once booted up, it wont be in the update loop anymore! But instead it will tell you that it cannot boot up system due to firmware difference and must be updated. Plug back in your usb if you took it out, and press start and select at the same time, to continue with the firmware update. NOTE!!!! Most likely you will experience what happend to me. It will stay at 99% for awhile... so dont panic, it will go through! And thats it! Your data should be intact, you would have saved 150 dollars for repair, but most of all, your firmware is updated!