I was getting the same error while trying to upgrade to 2.6.34 kernel on VMWare. The odd thing is that I did not get this error doing the same thing on Virtualbox.
Anyways, the error, at least in my case, stemmed from it being unable to unpack into /lib/firmware/ for some reason. Checked and for previous kernel there was a directory for /lib/firmware-18.104.22.168 where for the new kernel there was a link /lib/firmware -> firmware-2.6.34 problem was there was not a directory for firmware-2.6.34. I created the directory /lib/firmware-2.6.34 and, so far, all seems to be working correctly.