It looks like I am having a similar problem. hldsupdate stops with the
following error:

Verifying: D:\CS_S_Server\reslists\counter-strike source shared
content\exclude.lst
Failed to create directory D:\CS_S_Server\reslists\counter-strike:
source, Win32 Error 267 "The directory name is invalid."

when I created the server dir I just ran hldsupdatetool.exe populate it.
I didn't notice an error when it completed the first time.

But there were no executables in the directory, thought that I did
something wrong, but I don't think so now.
It doesn't look like a network error, its like the update is trying to
create an invalid dir [ you can't use : in a dir name]
So it never completes.

any help is appreciated

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