I can see what your saying as well. But i do not see how even a update could prevent a boot disc from loading. It stops after it loads the files and before it tries to even mount the NTFS File System. Which would leave me to believe that somethig more in depth is going on.
If anything....create a new partition and use GParted to format. Then try it. If that still doesnt work you will have to try a check disk to make sure that the current install does not have any bad spots or files.
All in all you might end up losing your current files. IF you want you can preserve them with a external drive and a Linux LiveCD.
But i would not pin this fully on SP1. After you reinstall please make sure to read the Vista SP1 information.
Windows Vista Service Pack 1 is not available for installation from Windows Update and is not offered by Automatic Updates
That tells you if your system is ready for SP1 and the steps you should take ot make it ready. If you do not meet those requirements do not force SP1 onto your system or you will cause more problems like this.