Same thing happened to me and I'm on a retail console. It's good that at least the Ouya still works after failing to install the update though...Could the fact that some of us keep losing root even with your mod have something to do with which OUYA we're using? I know mine's a kickstarter unit and that caused problems with the OUYA toolbox.
@robinscp
Are you sure your update went through OK? What happens when you check for the latest system update?
It's too bad that this mod failed to work with firmware update 1.0.393-r1. Any ideas on how I can install without getting the red "!"? I'm thinking about waiting to update for awhile until (hopefully) this mod is updated to work... If it would be helpful, I can attach a logcat of what exactly is going on to make the installation fail