Any idea when this crap will actually work??
Yes. When end users understand the exact correlation between file ownership and permissions, and how scripts that ask to access both the network and a user account (ftp) even with proper credentials, may still be denied by server side configuration issues, or security features that are actually designed to protect them from malicious scripting.
That being said, even successful automatic updates can result in unwanted file ownerships that don't rear their heads until the blog owner attempts to move or modify those files that were last written to his/her own site by an update script. That coupled with an overwhelming need for even a rudimentary understanding of how to review server log files and identify WHY a particular request fails, can often lead to a failure to find often very simple solutions...
...Like changing permissions on a an upload folder, or improper file or folder ownership caused by a server misconfiguration. Or by allowing a particular plugin to access the network or write to a directory by adding an exception to a server side security policy.
A veritable wealth of information and solutions for a huge number of different causes, can be found in all of the discussions logged on the subject here in the forums.
It can sure be a convenience running an automatic update sometimes. Figuring out why it won't work can take a little more effort. That's just a few of the things that can contribute to the sort of "Kludgy Bullshit" that results in heartbreaking automatic update failures like yours. I'm sure there is a dozen other reasons. I hope you find a solution that applies to your specific situation.
Good luck to you!