Trouble updating Modules in Drupal 7 with FTP
I had the same effect.

The instructions at http://bdhacker.wordpress.com/2011/11/26/update-drupal-modules-using-ftp-in-localhost/ have all the necessary details. Especially the vsftp config (/etc/vsftpd.conf) is important. Make sure the following options are set:

listen=YES
local_enable=YES
write_enable=YES
local_umask=022

Don't forget to restart vsftpd after config changes.