Here's the complete solution that works for me :

1. Download and install rootsh directly from the Nokia N900.
2. Open X-Terminal
3. ~ $ sudo gainroot
4. ~ $ vi /etc/resolv.conf
5. Changed "nameserver 127.0.0.1" to "nameserver 8.8.8.8" (Google DNS)
6. Press Shift + Z + Z (to save the file)
7. ~ $ cat /etc/resolv.conf
   nameserver 8.8.8.8

Here it is. Now you can update and everything else.