My problem was solved
Yeah, I had the same problem. My iPhoto kept showing me the same "can't open iphoto, make an upgrade" message. My version was iPhoto 9.0 and the Software Upgrade wouldn't find any available upgrade. Of course, it happened right on the day I wanted to show my pics to my family. The only way it worked for me was:
1. I re-installed iPhoto from original Mac Applications Install Disk. Couldn't skip this step because my installed iPhoto wouldn't even be recognized by the upgrade made on step 2;
2. Downloaded and run latest available iPhoto version from Apple website, which was version 9.1;
3. iPhoto launched perfectly and immediately pointed to another available upgrade: version 9.1.1;
4. Made the new upgrade. iPhoto now works perfectly. Good news: my Library was intact.