This is waaaaay after the fact on this issue, but hopefully this will help others who have run into this problem:
If you are lazy like me, you cut-and-paste the command for the update, for instance:
esxcli software vib install –d /vmfs/volumes/datastore1/patch/update-from-esxi5.0-5.0_update02.zip
For some bizarre reason, the dash in front of the "-d" command is not interpreted correctly when you cut and paste to an SSH session with an ESXi host.
So either type it all out manually, or replace the dash after you've cut and pasted the command.
It won't look any different, but it's solved the problem for me every time.
In fact, the resaon I'm submitting this is so that it's out there the next time I forget and do a search for "Unknown command or namespace".