Solarnz is the developer that wrote the necessary code to protect Internal Storage. There will be another thread on that though. I just put it here out of necessity.
Step 1: Flash new recovery DOWNLOAD
Reboot System and boot back into recovery.
Step 2: Flash HC 3.1 System Update DOWNLOAD
Step 3: IMMEDIATELY flash Bootloader Patch DOWNLOAD
Wifi Only users SKIP STEP 4
Step 4: ONLY FOR VERIZON 3G DEVICES!!!
Flash this updated boot.img zip after Bootloader patch. DOWNLOAD Thanks a million Blades! Saved my butt!
Step 5: Return to main menu. Do a "wipe data/factory reset"
NOTE: Your internal storage (aka /sdcard) will be safe from this wipe. However, all other userdata will be wiped. Seems to be a necessary evil.
Step 6: Reboot
Step 7: Enjoy Honeycomb 3.1