>>>Are you trying to do your updates in small batches? Try minimizing the number of records to do update at once.
> Basically, the user is working around the problem by breaking the batch up into smaller ones.
> I'm wondering why the big batch is failing..
>
>>>Also, where the TempDB is located? Is it on the same drive as main database?
>
>Yes, it is. Do you think that moving it might help?

It may. In SQL 2005 DBA book I have that was a suggestion.

Check also http://www.sqlusa.com/bestpractices/configureharddisk/