If you are running into this error please try the following:
Locate your content_log.txt file in <Steam Folder\logs\ folder
Look for a line similar to "[2012-09-18 11:27:15] Update job for app 49520 canceled: Failed updating depot 49521 while unpacking bad chunk "1258282edfb7b7439424462411ab96207e792732" from "D:\Steam\depotcache\49521_depotcache_1.csd"
If you locate this line navigate to the following directory: <Steam folder>\depotcache\ and delete the 49521_depotcache_1.csd file
Note that removing this file may remove some preloaded data but should correct the Disk I/O error