done everything you said it failed again. root menu says:
build cyanogen v1.4 + jf
-installing new image!
-press home to confirm, or other to abort
-install drom sd card
finding update package...
opening update package...
E: cant open /sdcard/update.zip
(no such file or directory)
installation aborted.
hmm you are using Cyanogen mod. I have not used this... I have always used Amon RA.
Lets install Amon Ra instead of Cyanogen. To do so do this:
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2. Copy the Amon Ra recovery image to the root of sdcard ( not in any folder )
3. Copy flashrec to the root of your sdcard
4. Install flashrec (Use a file explorer like astro)
5. Open flashrec. Then, Back up your recovery on first screen then in address bar put /sdcard/(ur amonra recoveryname with .img) and press flash. Typically it will be like this
/sdcard/recovery-RA-hero-v1.6.2.img
Your done! Switch off the phone, switch it back on holding home key & power key
You should see a new recovery menu and at the bottom it will say Amon Ra 1.6.2 .. when this is done follow these
instructions (steps 7-9) or post back here.
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If that fails try this:
1) Go to the market and install an app called Terminal emulator.
2) Make sure recovery-RA-hero-v1.6.2.img is on your SD card. Not in any folders, but the root of your card.
3) Open the Terminal app and type in the following commands. (enter) means press the enter button lol.

.. please not the SPACES. This is important.
su (enter)
flash_image recovery /sdcard/recovery-RA-dream-v1.6.2.img(enter)
reboot recovery (enter)
See if that works. I did it yesterday as I updated from 1.5.2 to 1.6.2 and it did not says 'successful' or anything so to see if it works power off your phone. Turn it on holding the power and home button.
You should see a new recovery menu and at the bottom it will say Amon Ra 1.6.2 .. when this is done follow these
instructions (steps 7-9) or post back here.