Symptom
When using AirPort Setup Assistant after an update to AirPort 2.0.2 software, you see a message that "Your Base Station needs to be updated." When you click the Update button, you are returned to to the password entry dialog. The Assistant is stuck in a loop at this point, and you must quit it without completing the setup.
Note: This does not affect AirPort 2.0.2 software for Mac OS X.
Solution
Locate your copy of AirPort Admin Utility, and use it to connect to the base station. You will be prompted to update the base station then.
Note: The location of AirPort Admin Utility may vary, depending on the history of your system. If you don't know where it is, try using Sherlock to find it.