MacBook Air SMC update 1.8 killed keyboard & trackpad? (on MBA 11,2010,1.6C2D,ML)

Hi all,
A bit of a pickle. This is briefly what has happened:
1. Beloved MacBook working fine with Mountain Lion and all updates applied
2. Notified a single update is available so downloaded and applied "SMC 1.8 update for MacBook Air" using App Store
3. On restart no response to trackpad or keyboard (apart from power key)
4. MacBook responds to SMC reset key combination but this doesn't cure the problem, and now the Bluetooth assistant pops up to help me find a keyboard
5. Other key combinations don't seem to work, and no green light on caps lock key
6. NVRAM reset using external keyboard, this doesn't solve the problem
7. With an external keyboard and mouse attached, everything seems to work perfectly, except the built-in keyboard and trackpad
I took it in to my local Apple Store today and their diagnosis software gave everything the green light apart from the internal USB devices. The "genius" advised this is probably due to a faulty trackpad and replacing that would perhaps cure the keyboard as well, especially as it seemed to be partially working at least.
I am out of warranty but I suggested as everything was working perfectly right up to the SMC update then perhaps they might replace my trackpad and possibly top case for free, if there are no signs of water ingress or physical damage when they open it up. They are considering this but I don't hold out much hope! Has anyone else experienced this issue? What would you do in my position?
Thank you for reading this and any responses are greatly appreciated.

In addition, if I try to do a software update I get a similar crash.
Firefox is working as i itunes and MS Office Apps.
What can I do to resolve? Thanks

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