I think you are inaccurate in saying "the upgrade won't install." As Autumn advised on 10/26, "upgrading from any Windows XP product requires a clean installation." So, my understanding is that the upgrade should install, regardless of what OS was ever on any HDD on the workstation.
I think that some of these licensing provisions are intentional, and some may be accidental. I compare it to statutes; in the original Act of the legislature, every provision has some logic to it, and maybe there is some integrity to the whole Act, and also, when the statute gets amended, repeatedly, years later, every amendment has some logic to it, but the amendments to not quite take account of what's already written, and gradually the whole thing becomes practically impossible to understand. MS is so up tight about intellectual property intellectual property battles that maybe we nonprofits are just victims of collateral damage. Or maybe these licensing provisions are all expertly calculated on a vast spreadsheet, trying to balance the value of good will versus income, to maximize market control and profit.