if you're using CWM, you don't need to name the rom "update.zip" - that's just for SPR. but, if you have it named update.zip, no problem. boot into recovery by holding down the x key and pressing power button. when M logo shows up, release the power button, but keep pressing x until you boot into recovery. then select "wipe data/factory reset". then select "wipe cache partition". then go into "partitions menu", and "format boot" and "format system". then press the power button one time, to toggle back to the main menu. select "install zip from sdcard". then scroll thru the sdcard files until you find your rom zip file, and select it to install. once it's done installing, press the power button once to toggle back to main menu, and select "reboot system now".
EDIT: i am assuming you have already done a nandroid backup?? if you haven't, do that first, before you wipe.