Hmmm... I didn't do it like that, so I'm not sure. Before anything else, I suppose try to grab that rom again. When you sync up, make sure there is no file named update in the root of the SD card. Whatever is there, delete it. Rename the rom to update, and put it there. Try one more time. If it works, it's quick. If not, Math3ws tutorials are simple. I would still go into Rom Manager and flash Clockwork recovery as soon as you've confirmed root. All of the roms on Rom Manager are sick, so play with them. My preference is Bugless Beast. The cyanogen roms are stacked with features, but Petes BB is super stable, fast, and smooth. With P3 kernels, my battery actually lasts too.
I rooted before the 2.1 update came out, so I haven't had to wory about it with 2.1 at all. Seems like the permissions wouldn't be there the way he did it on the video, but I ain't callin him a liar.
One thing to make sure on as well; you just rename the file update. If you add.zip, the system will read .zip twice, and fail. This is because windows hides the file extensions.