I was having some issues with my G1 yesterday. Thought that since its acting funny I will upgrade from 220.127.116.11 to 4.2.1. I was following instructions just like you posted here. I downloaded the "recovery image" and tried to back up. It flashed "working" very fast and said back up failed. So I proceded with the rest of the update by removing SD card and adding each of the "zip" files and rebooting phone. That all worked just fine using the update.zip process and rebooting each time. When done everything works just fine and is a little faster. No problem as of yet. However the recovery image back up still fails. So I have no back up image. Any ideas ?