Found this on YouTube. Sounds like it works. I'll lose my data, but what I really want is in the cloud.

How To Fix PS3 Stuck On 99% Update loop

1. Turn on PS3
2. Wait until installing occurs and pull out old HDD at 0%
3. Error should occur(let it run the count down and let PS3 restart itself)
4. You should be seeing a "press PS3 button on controller screen". On that screen put your new HDD in the PS3 AND have USB with update on it in the PS3.
5. Let it look for the update on the usb and download it / let the PS3 restart itself
6. Now you should be seeing the "press PS3 button on controller screen" again (don't worry)
7. Let the PS3 reformat your new HDD and let PS3 restart itself
8. After the reformatting it should reinstall the update using your USB again
9. If it worked you should see a screen with a PS3 to the ps3's,
10. Congrats you got your ps3 back

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