I got an unlocked Nexus S for Christmas, and it came with Android 2.3.4. When I got it, I saw I could upgrade the OS to 3.something(don't remember what). I started the update, and saw an Android robot standing next to a white box with an orange arrow coming out of it. After a while the image turned into an Android next to a white triangle with an orange exclamation mark inside of it. It stayed that way for a while until I hard-booted it. Now it's on 2.3.4 and it says it's up to date. What's the matter?

Well, your operator might not officially support anything above 2.3.4. By unlocked, you mean you can use any operator in it? I'd imagine you also need to hack it open, softwarewise, so you can install a third-party firmware/software into it. I have Samsung Galaxy S, so I'm not privy to the exact details of hacking, but I'd suggest you head to "xda developers" forum, they propably have instructions/firmware for Nexus.

I'm just above a layman when it comes to android, but sounds to me like the PHONE new it could be updated (read: the carrier offered it for their phones of the same make), but when it connected to the carriers update server, the CARRIER put a stop to it. Carriers arent too fond of unlocked phones, for obvious fiscal reasons, and so they don't dote too much on customers that have them.

If your looking for more functionality from your phone, and your carrier isn't offering it, I'd consider rooting it and checking out some of the aftermarket ROMs there are. Obviously, there is a concern to be had about warranty voiding, but if it was unlocked by a private party, and not sold that way, there's a good chance its already been voided with the manufacturer (and not too many carriers will offer insurance/warranty on an unlocked phone).

If you decide to go this route, I'd check out cyanogen mod (THE aftermarket ROM).