It seems in anaconda 17, updates.img may now contain an entire anaconda tree in subdirectories of /tmp/updates . prior to 17, they just contained a pyanaconda directory at the top level. dracut has been adjusted for the new format, so updates work on non-live installs (allegedly), but liveinst hasn't, so when you use an updates.img for a live install, you get a /tmp/updates/tmp/updates/ folder with all the changed data below that, and it never gets read because of the extra layers. The fix for this is to adjust the updates.img loading code in liveinst (after the comment "# We officially support two updates.img formats: a filesystem image, and a compressed cpio blob.") to not change directory to /tmp/updates before extracting cpio blob-format updates.img files, and to mount filesystem image-format updates.img files in a temporary location then copy them appropriately into /tmp/updates (because we can't very well mount them at /). Nominating as a Beta blocker per Alpha criterion "The installer must be able to download and use an installer update image from an HTTP server", in the case of live installation.
anaconda-17.16-1.fc17 has been submitted as an update for Fedora 17. https://admin.fedoraproject.org/updates/anaconda-17.16-1.fc17
Discussed at 2012-03-28 go/no-go meeting, acting as a blocker review meeting. Accepted as a blocker per criterion "The installer must be able to download and use an installer update image from an HTTP server". -- Fedora Bugzappers volunteer triage team https://fedoraproject.org/wiki/BugZappers
Fix confirmed in RC2. beefiness is present. -- Fedora Bugzappers volunteer triage team https://fedoraproject.org/wiki/BugZappers
anaconda-17.16-1.fc17 has been pushed to the Fedora 17 stable repository. If problems still persist, please make note of it in this bug report.