Yes those instructions for tce-update (including the instructions displayed by the script itself when you run it on a partition without enough space for "easy mode") don't really work.
When booted with "base" the partition with the "tce" directory isn't mounted and the /etc/sysconfig/tcedir symlink points to a directory in /tmp. As root, you need to manually delete this symlink, mount your tce partition, and create a new symlink to your actual "tce" directory:
sudo rm /etc/sysconfig/tcedir
mount /mnt/sda1
sudo ln -s /mnt/sda1/tce /etc/sysconfig/tcedir
Replace "sda1" with whatever the name is for the partition holding your tce directory (you can also check the path of the /etc/sysconfig/tcedir symlink when TC is booted without "base" using "readlink /etc/sysconfig/tcedir").