In a nutshell, it doesn’t work.
There are a number of places in one of the upgrade scripts where the ‘sa’ login name is hardcoded into the script. If, as is possible on SQL 2005, the sa account has been renamed, the upgrade fails and leaves the SQL installation in a state where it cannot be used.
For all the gory details – Connect item 364566
There’s a slightly dodgy workaround listed on the connect site, but the best thing is to make sure that sa is renamed back to sa before attempting a SQL 2008 upgrade.
Update: There’s another workaround for this, other than creating a fake sa account. The PSS Engineers are working on a blog post and KB article. I’ll link to them once the articles are available.
Update: Bob Ward posted a long blog post on this, including a way to fix the broken SQL 2008 service without creating fake ‘sa’ accounts. There is more to come still on this one.