I was having the same problem: stuck on "formatting /dev/mmcblk1p2 (ext3)...."

I have a 4GB SD card (not sandisk).
Solution: Execute the manual installation up to step 4 (even if some step may fail), after step 4, type nitdroid and go through the automatic process, worked for me.

Manual Install Link.
http://wiki.nitdroid.com/index.php?title=N900-install


DaHui