I just ran into this issue. Here's the entire experience and resolution.
I noticed that when you boot into normal mode, you're faced with a WiFi connection screen asking you to connect to install the critical update. No matter what you do, it never seems to succeed, leaving you with the error message where the Mac can't start until this critical update is installed.
I tried NVRAM and SMC resets, Online Recovery, First Aid on the SSD, Time Machine Backups, Deleting partitions and reloading the OS, Mac Diagnostic tool upon boot, nothing worked. Booting into Safe Boot works, that's how I temporarily dragged off my files onto an external drive.
At no point did the touch bar ever light up, which meant that it failed or something was preventing it from working.
I scheduled a visit to the nearest Apple Store Genius Bar and had them run something called MRI (Mac Resource Inspector), a software tool only Apple-techs have access to which connects my laptop to their in-house server which scans my machine remotely.
During the mid point of the scan, I noticed my touch bar lit up, then about 5 minutes later the scan showed no problems. The tech restarted my machine but performed the NVRAM reset (CMD + Option + P + R) before proceeding to boot normally.
This time it went all the way through and allowed me to login normally. This leads me to think that the MRI software either loaded something my laptop needed or reset the condition that kept forcing me to apply an un-installable update.
Finding an article online, I read that there might be some sort of conflict between the Mac OS (High Sierra) and the OS for the touch bar controlled by the T1 CPU. I'm guessing that if both don't recognize each other, it may result in this problem.