Is the 266 a rev A or rev B? I think it's rev B so:
Did you try starting up with the paperclip pushing the firmware reset button? It's the lower of the 2, and if the firmware update had been successful, it would have prompted you to do that. Hold it in, press the power button, and hold it in until you hear a long tone. Maybe the updater worked but then the computer froze up. Probably not, but it couldn't hurt to try.
From
http://docs.info.apple.com/article.html?artnum=60385 (This is for the imac updater 3.0 but says the rev B and above need the button pushed in on restart.
http://docs.info.apple.com/article.html?artnum=60384 is specific to the 1.2 update.
"Conditions that May Cause the iMac Firmware Updater to Fail
There are other conditions that may cause the updater to fail.
* If power is removed during the update, the Boot ROM may become corrupted and not retrievable.
* If a /A configuration is restarted using the paper clip by mistake, the update will not complete. Power must be pulled for 15 seconds and the update attempted again. "
Also, if you get it to work, i'd recommend upgrading to 8.6 or 10.3.9. OS X is kind of slow on a 233, but it isn't that bad. Works fine for internet, email, and iTunes.