"So you are getting the same error and have a modchip, too? This must be a compatability issue with the Homebrew Channel and modchips. Unfortunately I'm really not too intelligent in those regards , so hopefully brentbizzle has time to hop on soon and shed some light on this situation."
I have the same problem too. I updated my Wii last night. Then I applied the Twilight hack. I have the homebrew channel and the homebrew shows up, it just won't load. Like the OP, my Wii just sits there at 0%.
My Specs:
- Using a 2GB (probably overkill?) Sandisk micro SD card in an SD adapter shell.
- My Wii does not have a modchip in it.
- Before I started on a Vista machine, I right clicked and selected "Properties". My computer said the card was formated as "FAT".
- I've not tried reinstalling. It was late and I went to bed.
- I initially selected the "0" save file in Zelda. My system just hung. My version needed the "2" save file. After I rebooted the Wii, and selected the "2" save file, installation proceeded fine.
- I'm not sure what else to tell you, I'm a noob at this but I'm good at following directions.

Now that I've said that, I'm certain someone will point out something simple that I've missed/overlooked.
Thanks for any help you all can offer.