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Why does the SQL Server upgrade sde3.x to ArcSDE 8.1 fail?
If your SDE 3.x or ArcSDE 8.0.2 upgrade to ArcSDE 8.1 fails, and you cannot determine why, make sure the dbtune table in the sde database is not empty. If it is empty, drop it and restart the upgrade with:
sdesetupmssql -o upgrade -u <sysadmin user> -p <sysadmin password> -s datasource.
Upgrade failures can occur for multiple reasons. If you experience an upgrade failure, check the upgrade.log file in %sdehome%\etc. Once you fix the error, restart the upgrade with sdesetupmssql.