I wrote the SVUpdate some years ago. Trying now to remember what it requires and I just dived into the source code... I'm pretty sure that you cannot just bz2-pack two mcs-files, because the SVUpdate needs a bz2-packed XSVF-file. The XSVF-format is a recorded programming session, i.e a recording of all the bit toggling that takes place when the Xilinx Impact program flashes the two flashchips on the SV.
As far as I can remember, in order to create an XSVF-file, you must:
1) connect a Xilinx JTAG cable to the SV.
2) start the falcon.
3) start Impact on the pc.
4) In Impact right-click in the big empty area and do a "scan chain" so that it finds and displays the two flash chips.
5) Select "..._1.mcs" for the left flash chip and "..._0.mcs" for the right flash chip.
6) This point I don't remember very well: Select "Record XSVF". From this point everything you do is recorded in the XSVF-file.
7) Now you will have to right click each of the flash chips and select "Program" (let Erase be selected), start with the left chip.
7) Select "End XSVF record" or what it's called.
8 ) You should now have an XSVF-file (approx 6MB in size). Pack it with "bzip2 -k -s file.xsvf" and then you can select it in SVUpdate.
These instructions are just a combination of my memory and checking the makefile and source code of SVUpdate. Please report the result of this!