My question is why the update of SomeTable.OrderKey within the loop can affect the order in which MyCursor records are delivered by FETCH NEXT.
Experimentation seems to show that under some circumstances, records can jump around in the FETCH NEXT order as a result of the UPDATE command and can be processed multiple times within the loop. I wouldn't have expected updates made directly to the table would make it into the cursor while the procedure was running, but apparently this is what is happening.

DECLARE @OrderKeyValue     decimal(10,4)
DECLARE @OrderKeyField     decimal(10,4)

SET @OrderKeyValue = 0.0001 

DECLARE MyCursor CURSOR LOCAL FORWARD_ONLY FOR 
SELECT OrderKey FROM SomeTable ORDER BY OrderKey
FOR UPDATE OF OrderKey

OPEN MyCursor
FETCH NEXT FROM MyCursor
WHILE @@FETCH_STATUS = 0 
BEGIN
   UPDATE SomeTable SET OrderKey = @OrderKeyValue WHERE CURRENT OF MyCursor
   SET @OrderKeyValue = @OrderKeyValue + 1
   FETCH NEXT FROM MyCursor INTO @OrderKeyField 
END

CLOSE MyCursor
DEALLOCATE MyCursor