I had this problem yesterday upgrading Ubuntu Dapper to Edgy.  Note that this wasn't XUbuntu.
I was running the update via  `gksudo "update-manager -c" '

My experience was exactly as described above: package downloading went fine, lots of "preparing to install..." reports with no problem, and then lots of "Setting up..." reports before the crash.  The estimate was down to "About 2 minutes" from an initial 30, which was fairly accurate based on the clock I was watching.

Shortly before the crash, the reports appeared to stop (there had new output at least every couple of seconds up to this point, and this was a pause of many seconds with no output), and the load meter hit 100% for several seconds (ten? fifteen?) before the installer window simply vanished.  No error dialog, just "Baff! Where did that window go?"

Re-running update-manager from the System menu brought up a window of the right size and shape, but it had no content.  I tried this several times with no success.

Thinking that a reboot might solve the problem (it did on the other machine I'd upgraded when the installer gave up), I found that the install would not boot.  Grub was fine, and there was a new entry at the top of the list, but the screen stayed black with a flashing cursor for several minutes without any harddrive activity at all.  Rebooting and trying the "recovery mode" kernel didn't work either, but from the boot messages it was clear that the SATA modules were not present.  This explained the kernel's final "waiting for root filesystem..." message, since that was on /dev/sda5.  After some length of time (five minutes?) this gave up, and dropped me into BusyBox.  There was a message about being "unable to find tty" (I forget the precise words).

Eventually I managed to boot the system using an old kernel.  There was a major problem with the filesystem (I assume it was the root partition, though it could have been /usr) which dropped me into a manual fsck.  A large number of inodes (about a hundred) needed correcting.  I didn't catch the exact error, but I got the impression that inodes that no longer appeared to be in use had not been freed properly, so inode counts and free space bitmaps were wrong.

The system then booted, but X was broken.  It was trying to open /dev/input/mice rather than /dev/input/mouse0 and so died because it had no core pointer.  I ran `dpkg --configure -a' and that seemed to fix things - gdm came back up - but a "bad variable" error in /etc/gdm/Xsession stopped me from logging in.

Changing to the "default Gnome" session allowed me to log in, but the system was obviously still confused: browsers and terminals would open, but dropdown menus didn't (they highlighted, but no menu dropped), and I couldn't give keyboard input (or focus - cursor stayed hollow) to anything because the keyboard had stopped responding.  LEDs, Ctrl-Alt-F1, everything.  After I'd been looking at it for several minutes the console did eventually switch, the keyboard started responding again, and I could log in to a virtual terminal, but the problem logging in to GDM still remained.

My assumption is that the system is subtlely broken, probably due to missing files or other filesystem problems, and needs a fresh install.  At the moment, though, I haven't had time to do this, so the system is still as described above.

If there's any way to breathe life back into the system I'd be glad to know it - I still have all the packages it downloaded, and wondered if a "aptitude reinstall everything" might be possible.  I need to make sure that there isn't any real filesystem damage, however, and am prepared to reinstall just for peace of mind if that's necessary.

Anyway, until then I have a "live" broken system available.  If there's anything I can check / try out / attach / whatever then please let me know - I don't have much to lose.  I'll try holding off the reinstall for a day or so....