Let me guess... Vista?
If I'm right, try launching the program by right-clicking on the icon and selecting "Run as Administrator." What could be happening here is that Vista's wonderful, not-intrusive-or-irritating-at-all security features are allowing you to download the update, but not letting your system upload anything (such as the instruction to continue past that point) to the internet, for fear that it's some spyware program trying to steal your credit card information or something. If that works, go to properties and enable to program to run with admin privileges all the time (you may also want to set it to Compatibility Mode for XP while you're in there).
Otherwise, it's possible you've got firewall issues. Most likely your firewall auto-updated and for whatever reason, the exception for CoH was lost, so it's blocking the program from transmitting anything. It's usually pretty easy to re-enable, but it varies from program to program.
FUN FACT: That burst of light when you level up is actually the effectiveness escaping from your enhancements all at once.
If you have a reskinning program such as windowblinds then you need to tell it not to reskin the City of Heroes files. It will cause just the problem you mention which is launching but not loading.
Second, playing through Steam causes problems with some systems. Steam and CoH aren't nearly as compatible as they should be. Launching the game on its own is a much more stable way to run it.
Don't count your weasels before they pop dink!
i updated my city of heroes game... (throught the updater obviously) and it wont let me launch it.. it just sits there, the bar doesent move and it wont ask me if i want to play or not.. its weird. help?