By starting the update using the command line, I was able to bypass the secure token/owner check from the Software Update pref pane:
sudo softwareupdate -i -a -R
-i Install
-a All appropriate updates
-R Automatically restart (or shut down) if required to complete installation)
infiniteloop
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A little googling on OpenDirectory error 5103 and the fact that another machine updated from Beta 1 to Beta 2 without issue led me to find the difference.
If the machine has a secure token (Run sysadminctl -secureTokenStatus <username> and you will either get "Secure token is DISABLED" or "Secure token is ENABLED") then the update works as expected. Without a secure token, the update fails.
Both machines don't have FileVault enabled. It's unclear how one machine ends up with a secure token and the other without.
I couldn't find a definitive solution for getting a secure token, so I'm really hoping this is something Apple will fix.