The problem is that the patch did not complete, and then you stuck a DMS with firmware forceupdate into the Phatbox. So, as you wrote, it is in an update loop.
You need to try to complete the hack. If you have not done anything else to the original DMS, the patch files should still be on it. There is a file on the phtsys partition called ramdisk.sig that needs to be corrupted in order to force the patch to complete. Do this by renaming ramdisk.sig to ramdisk.bak, then copy phatd.sig to your desktop, rename it ramdisk.sig, and copy it back to the DMS. With luck, the patch will then fully execute.
Before you try to use the new DMS, make sure you remove the files from the phtsys partition called forceupdate and forcesettings. If these are not removed, it will force a firmware update -- which should normally only be done prior to running the hack.
There can occasionally be other issues with VW phatboxes, so if it still will not work, do a full search through the forums for VW hacks for more info. If you get stumped, post again.