Hey man as I mentioned before my nephews PS3 had the same problem. All I did to fix it was:
* tear the entire PS3 apart to clean it and re apply thermal paste.
* While I had the mobo out I thought about removing the PRAM battery to see if that would fix the update error.
* After I put the PS3 back together I turned it on WITHOUT a hard drive then when the missing HD error came up I inserted the HD then turned the PS3 off.
* I turned it back on and the update ran right off the batt as usual except it was updating much faster. I just let it finish and it actually finished the update and booted into the home screen.
All his saved data as well as media was still there and it is now running fine. I do not think you have to do the whole thermal paste deal but just remove the PRAM battery for a while then try what I did with the HD. I hope this helps. Good luck!!