I have an iPad 2 as well and experienced the same problems you decribe with the update but i finally found a solution that worked for me.
First, start itunes on your computer then you must follow these instructions to get the ipad shut down and then a recover start thru itunes, follow this link:
http://support.apple.com/kb/ht4097
Second, once you accept the recovery and update option and it starts downloading the necessary data for the update, unplug the ipad from the computer. This will force itunes to finish downloading all the data without dumping anything onto the ipad yet. Also, shut down the ipad just like you did in the first step.
Third, itunes will tell you the recovery and update failed, say ok.
Fourth, plug the ipad back into the computer like normal don't hold down the home key like you did in step one, once itunes recognizes the ipad hit the recovery and update option again and it will finally start extracting the data and stop the loop from occuring on the ipad and the recovery and update will begin.
I hope this works for you, let me know if you need further explanation on any of these steps. also, let me know if it works out for you.