Attempt to upgrade from M2 -> M3B4 ( 28 Mar ) fails

Today I took a shot at upgrading a basic M2 install using the
newly released M3B4 32-bit classic install DVD. The M2 install
was created using an up to date local repo, a completely blank
drive and the M2 boot.iso CD ( 32-bit ). The install of M2
went normally and successfully. I then put some bookmarks
in Firefox and rearranged the desktop slightly. I then went
through the update process and a few files were updated.
I set the boot process to automatically boot to the user
workspace. No other apps, features and/or functions were
installed. I then did a successful reboot back to workspace.

I then inserted the new M3B4 32-Bit Classic DVD install
disc and rebooted the system. I instructed the installer
to upgrade the already installed M2 OS. About halfway
into the install numerous install errors were reported.

Using a Puppy Linux 5.5 Live-CD I was able to capture
/var/log/syslog and the /root/drakx directory. Those
files are contained in a ZIP file attached to this bug.

I went no further then generating this data. This is
all done on real hardware and can be duplicated. But
do note it took me more then 4-hours to go through
this process.

Reproducible: 

Steps to Reproduce: