Your warning would have come a day too late, except that I found a thread over at 2K talking about the update. First of all, no one knows what the hell the update does. Second, several people complained about serious hitching after they updated. For some, clearing the cache helped; for others, it did not. I found a very similar thread on the X360 forum for the game [edit: and there you are, revealing your scary fate]. Fortunately for me, I had already beaten the game to death, and gotten all the achievements. One thing that infuriates me about updating policy is that if you don't, you are summarily disconnected from Live while you play the game. I understand the reason, for multiplayer games. Bioshock is strictly single player.
Anyway, I rejected the update last night, and I will continue to do so. Better still, I think if I play another game, I'll do it under my offline profile "DejaVu".
Sorry about your console blowing up. If I may be allowed to guess, I'll say that it was marginal already, and the strain of Bioshock with a somehow-fucked-up patch pushed it over the edge. Hope MS makes good on their promises. They've acknowledged the issue publicly, and devoted $1 billion to it.