My k2i started to update one morning when I turned the wireless on but gave the failed message because I have the hacks installed. I quickly uninstalled everything but it seems the moment of receiving the update has passed. I presume the hacks will work with 2.3.4 but perhaps the only people who have received it are the ones who haven't installed the hacks, so that is just a guess.
I had the font hack on and it tried to update like yours, I got the failure message, when I unintalled the hacks I restarted my kindle. Then I turned on wireless, did a check for new items. And then within 5 minutes got the update over whispernet. Then I put the font hack back on.