It sounds like your opening <?php tag is abutting your first call to update_option. If it isn’t directly adjacent to it, perhaps the whitespace between the two is unrecognized for one reason or another (this can happen from copying and pasting from some sources). Have your functions.php file start off like this:
<?php
update_option('siteurl','http://example.com/blog');
update_option('home','http://example.com/blog');