Well its not as epic a failure as the title suggests, but it is a bit of unnecessary bad publicity for sure. It seems there is an issue when upgrading MOSS 2007 with Service Pack 2.
The license of your farm is automatically transformed into a SharePoint 2007 evaluation license.
This can be fixed by re-entering your key in the 'Convert License Type' under Operations in Central Administration:
This is a fairly quick fix and Microsoft are working on a hot fix now. To me this isn't really a huge problem however it could have been had they not found this.
You can read more about this here: