OK, so here is my update on this issue.
I called AT&T yesterday morning and they immediately transferred me to Samsung.I went thru all 3 levels of their support just to be told that it's AT&T's problem.
I called AT&T back, got bounced around for a while between a few people who knew nothing. Then I finally got to someone in Data Support department who actually knew of this issue. First thing he did was check the IMEI number on the phone and noticed that it was wrong in their update system. He updated it with the correct one, but it didn't fix the problem. So then he tried to push the update to my phone. Within a few hours, I received a notification but it eventually came up with the same error "Failed to Communicate".
So later that night, I called AT&T back and got bounced aruond for over an hour, until I got to "Android Specialist" department. The girl I got there was clueless, I mean completely clueless. She actually told me that this phone does not have a GPS problem. When I politely told her that this is a world-wide issue with ALL Galaxy S phones, she was stunned. Then I told her that this is what this update is for, to fix GPS issue. So to that, she told me they are not recommending this update at all, because it seems to be breaking phones. To which I replied, how the hell is AT&T is still pushing this update to people when it is supposedly causing an issue.
So then she told me no matter what, GPS is NOT a warrantable issue and would not be covered under warranty. At this point(I'm on the phone for over 3 hours now), I was starting to lose it. And I told her, she was completely wrong, and that they sold me a defective phone and I demand a new one.
So she transferred me to a supervisor. Supervisor said, that update is not "not recommended" and she wasn't sure why her rep said that and she would talk to her about it.
The supervisor setup a return procedure to send me another captivate, albeit a refurbished one.
Here comes the interesting part.
This morning, I got to work and decided to try the update again and lo and behold, it started downloading. My guess, is that the IMEI number update finally propagated thru their system.
So the download completed and it gave me a few warnings about how I couldn't use the phone while the update is being installed and so on. Then it restarted and went into the update installation screen.
There it got to 34%, sat there for a while and then jumped to 50% and immediately said "Update Failed" and rebooted.
I tried to re-download the update a few more times and got the same result.
I called AT&T again and after talking to them for a while, they just said, wait for the replacement phone to arrive, because they have no idea why it is not installing.
So my suggestion to everyone who is having the "Unable to Communicate" problem, call AT&T and get their Data Support Center on the line and have them check for the correct IMEI number and then ask them to push the update to you. If that doesn't work, then simply demand a replacement.
I hope this helps.