Hmm.. can't upgrade... That sucks. (Must be new for 10.2.x, this worked for 10.1.[1-5]). I guess it's time for the Archive and Install.
As long as you select the option to keep Users and network settings it's not _too_ bad. Once it's done, the first thing you should do is move your Users folder back into place from the Previous Systems folder. This folder will be right on your hard drive, and you'll have to go into the Previous System 1 folder inside. You'll see all the directories that make up an OSX install. You should replace the new /Users folder with the one at: /Previous Systems/Previous System 1/Users
This would be easiest as root, but if you didn't enable root and don't care to, you could log in as yourself (an administrator, that is) rename /Users to /Users.o, and then copy over the Users folder from /Previous Systems. (Thus pulling a little switcheroo). Log out as soon as it's done, then log back in.
You should have just about everything back to the way it was at this point. The only things that would be broken would be 3rd party utilites that installed in naughty places like /System/Library Some applications might bitch about licensing (and make you re-enter your serial), as well.
Your 3rd party apps will all still be in /Applications, and only the old, broken Apple apps will be in the Previous System directory.
PrefPanes and extensions that install into /Library will be gone (I think) and you can either reinstall or pull them out of /Previous Systems/Previous System 1/Library
When you can't Upgrade... and you can't reinstall the failed update... this is pretty much the next thing to try.
Hey, look on the bright side, pre 10.2, when you got to this point the only option was to reformat your friggin hard drive....
Just be patient, and careful, and before you panic, remember, that all your stuff is there... it's just in Previous Systems
Good luck.
-alex.