Here's what I did to get it going.
Use fastboot to flash the system.img file from here:
http://xdaforums.com/showthread.php?t=1080963&page=2
Copy the system.img to your adb folder (typically tools).
Next extract the su.zip attached to this post. Copy the files inside (su and Superuser.apk) into your adb tools directory where you just put system.img
Run these commands in adb.
adb reboot bootloader
Doh ! V4 is on its way up. Oh well.
##wait until you see fastboot protocol support on the screen of your Xoom
then run:
fastboot flash system system.img
## When complete
fastboot reboot
When it reboots, boot into recovery. From here you can now install the update.zip you created in the OP. If it is there, flash away.
apply update from sd card
install update.zip from SD........
If not download the 3.2 update from the OP and rename it to update.zip. Move it to you sd card. You can just mount the SD to your computer by selecting Mounts&Storage > mount USB storage. When copied Unmount. Select Go Back and apply the update.
Back out and reboot.
Let Android boot. Ensure usb debugging is connected. Open a command prompt if it's not still open and cd to your adb tools directory.
then run:
adb remount
adb push su /system/bin/su
adb shell chmod 4755 /system/bin/su
adb shell ln -s /system/bin/su /system/xbin/su
adb push Superuser.apk /system/app/
adb reboot
Once you reboot you are now fully rooted, if you get a failure at the remount then you have a permissions problem. Start over.
##NOTE: If you have issues with Superuser not working correctly you can go into the market and re-install it or update it.
##NOTE If you get an error creating the symlink with:
adb shell ln -s /system/bin/su /system/xbin/su
run the following command:
adb shell rm /system/bin/su /system/xbin/su
then run the command to create the link.
adb shell ln -s /system/bin/su /system/xbin/su
You can also test root by running:
adb shell
su
If you get a prompt and it reports su, your good.