| | It worked great for my 8310...
Not sure if you are going to the right path, but the instructions link that ScooterG posted worked just fine. It by passes the Desktop Manager, which is what the real problem was when upgrading my OS, it just froze on me during the upgrade.
I would make sure you are going to the right path
C:\Program Files\Common Files\Research In Motion\Apploader
and from there type in
loader.exe /nojvm (a popup Wizard will appear after enter is pressed)
Also, make sure you've installed the Blackberry 8320 OS on your desktop, if you don't have the Blackberry OS installed on the desktop, you won't see the above path.
Hope that helps.