Simply burn Alpha 2 image - start Pi on ethernet wired. SSH to Pi. Login as xbian and raspberry. Exit from config program to command prompt. Update using the commands listed at http://xbian.org/2012/11/26/xbian-1-0-alpha-3-release/
When update is complete, shutdown Pi.
Make sure wifi dongle is present in Pi. Start Pi - it goes immediately to the Alpha 3 configuration program - set up the wifi there. Remove wired connection and simply reboot.