The line no 4493 in your logs indicates that the update script is trying to patch one of the original screensaver images, but fails because it's probably not there.
Code:
120621:041225 ota_install: I def:patch:patchinfo="/opt/amazon/screen_saver/600x800/01N.png":patching file
120621:041225 ota_install: C def:patch:patchinfo="/opt/amazon/screen_saver/600x800/01N.png":patch failure
To restore your Kindle to the original state, you need to make sure that /opt/amazon/screen_saver/600x800/ is a valid path and that it contains all the original screensavers.
Alternatively you can just reflash the whole system partition.