-using the vol rocker and power button,wipe cache
-select apply update from sd card
Did you remember to wipe the cache from recovery before applying update? That's the only thing I can think of.
And just so we're on the same page, you did go through the steps to install the GB mini-RUU, right? Scotty has said that stock GB + stock recovery is all you need to be able to install the OTA. I was only able to get the first phase done manually, then I had to download the big OTA using wifi.