Here are the steps I went through for the update... this might help those that are having problems..
1. I'm on XP, and I just got the Storm yesterday, installing the DM from the included CD. I had an 8830, and didn't remove any previous DM versions.
2. I dloaded the EXE and ran it. Anytime I started DM after that, there was nothing I could do to get it to install an OS update. Application Loader did nothing, and I even got a message to the effect that "You're on a BES, you can't update this way"
3. I manually removed the existing DM from my computer, as well as all other BB SW (I also had an OS updater for my 8830 laying around)
4. I re-ran the EXE I downloaded, which upon completion, did the upgrade to my BB (and kept all my data and configs!)
5. I re-installed the DM from the included CD
Might not have been the appropriate or simplest of processes, but it worked for me ;)