Oh, and if you independently download the IPSW for #iOS update, this may enable you to do a normal update

Instead of updating by running "update, and then searching for the downloaded file" option, you might want to play around with copying the downloaded IPSW file into the following location.

First, close iTunes (just in case!)

Second, find your Application Data location (this will normally be under c:\users or c:\documents and settings and then your user name. If your folders are redirected then speak to your network admin (although whether they want Apple Device Updates on the network is another matter!)
If you are not sure:
start a DOS Command prompt (start, CMD)
type "set APPDATA"
this will show you the path that you seek :-)

Inside that folder you will find "Apple Computers\iTunes\iPad Software Updates". This location appears to hold the downlaoded file, so if you have already downloaded the file, then copy/move it here.

I cannot prove the theory as the update is now over, but as the file names are the same, I would hope that when iTunes starts up, it will see the file and then proceed to offer the update instead of offering up the "downlaod and update" option - which at Corylus Towers (in deepest rural Fenland) takes a bloody long time!