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I also want to install Ermine, but following the instructions posted didn't work for me at all. I downloaded the Ermine version for PE and followed the instructions from Entourage's website to every step. I never get to the "Updating Software" splash screen while pressing the MENU and ROTATE screen buttons.
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We have another user with a bricked system who has been having trouble using the manual restore feature. A possibility exists that it might not be working for some people.
That said, here's how I do it. First, rather than use a USB stick, I've always done it with an sdcard. I make sure it is completely blank except the update.zip file in the root folder. Then, before I hit the power button, I make sure I have the MENU and ROTATE buttons pressed down. While I"m holding them down, I slide on the power button. You have to hold them a few seconds while booting up, but you shouldn't need to keep them held until you see the updating software screen; at most, you only need to hold them a few seconds.
To me, sounds like it is looking for the update but not actually finding it. Are you sure you have the correct update file and the it is named "update.zip" on the root?