This problem has been corrected in the Solaris 10 8/07 release.
If all non-global zones that are configured with lofs fs resources are mounting directories that exist in the miniroot, the system can be upgraded from an earlier Solaris 10 release to the Solaris 10 11/06 release using standard upgrade. For example, a lofs mounted /opt directory presents no issues for upgrade.
However, if any of your non-global zones are configured with a non-standard lofs mount, such as a lofsmounted /usr/local directory, the following error message is displayed:
The zones upgrade failed and the system needs to be restored from backup. More details can be found in the file /var/sadm/install_data/upgrade_log on the upgrade root file system.
Although this error message states that the system must be restored from backup, the system is actually fine, and it can be upgraded successfully using the following workaround:
Reboot your system with the installed OS.
Reconfigure the zones, removing the fs resources defined with a type of lofs.
After removing these resources, upgrade the system to Solaris 10 11/06.
Following the upgrade, you can reconfigure your zones again to restore the additional fs resources that you removed.