A little searching (on another machine) revealed that I was not alone. In fact, this was the second time this had happened to me on this machine. The first time, not knowing any better, I ended up reinstalling Leopard. This time, however, I discovered that Apple has acknowledged the problem with a Support Document. Fortunately, there is a way out of Setup Assistant hell: booting into Safe Mode.
You do this by restarting your Mac and immediately holding down the SHIFT key when you hear the chime. Hold it until you see the rotating gear below the grey Apple on the startup screen. Release it and the computer should eventually take you to the login screen with "Safe Mode" in red. One word of caution: give the computer plenty of time. Even if it appears stuck give it a chance to work; go get a cup of coffee and come back. Anyway, once you're in Safe Mode you can now hit "restart" and things should eventually get back to normal (perhaps after some updates are installed).
This problem seems to be a Leopard bug related to software updates. It's so disconcerting that I thought it would be a good idea to get the solution out there in case it should strike any of our dear TUAW readers.
Update: Head nod to Steve D who apparently discovered the same thing a few days ago.