I had the exact same hang as posted here on my iMac 3.0Ghz machine. The solution for me was to first remove the update files from
<your hard drive>/Library/Updates/Mac OS X Update/Packages/*
In my case the update files were only 45M instead of the 190M that the updater indicated. After removing the files and running software update again, the install went flawlessly after the updated re-downloaded the proper size update.
The method for removing the botched download of the update is approximate; please be careful! And, credit goes to "redstain" who posted how to do this in this thread (near the bottom at the time of this posting):
http://discussions.apple.com/thread.jspa?threadID=1722225&tstart=15