So after hours of research, I have fixed this by simply
1) Mounting mmcblk0p1.img with WinImage
2) Browsing to opt\amazon\scree_saver_600x800 and extracting the PGN files to my desktop
3) Copy the image files to my Kindle hack screensaver folder.
4) Reboot the kindle
Update can now be applied
I guess this is a noobs version of what other people have said on here. But anyway I though I would share this.