It appears that I cannot upgrade with a pending change in the system.
tfsupgrade /verify returns an error about a shelveset having pending changes.
According to the server status there are no pending changes for the listed owner and we have deleted the shelveset.
any suggestions I think we're stuck with B3R until we can build up a separate system...

can't upgrade B3R to RC due to pending merge / branch
mscwd
I couldn't wait. I just went in and manually deleted the two rows out of the pending merges table. That got rid of the error and the tfsupdate command appears to have completed successfully.
malvcr
When a shelveset is deleted, it's actually retained for a day, and there's a bug in the upgrade utility in handling this case. If you wait 48 hours, the shelveset will really be gone, and the upgrade will work.