Hmmm--sounds like the installer can't get enough memory to run, or is in conflict with something else.

I'm very rusty with 8.6, so sorry for being vague. Do you have the MRJ 2.2.5 installed? http://docs.info.apple.com/article.html?artnum=75097

also, I wonder if there might be a conflict with the older version of LW's prefs. What version were you running before you tried to update?