I am trying to install SP2 on a hosted E2K7 setup, But get an "Active Directory operation failed on <FQDN>. Has anyone seen this, or know how to install SP2 in this configuration? TIA.

Do you have the necessary permissions?http://technet.microsoft.com/en-us/library/bb125224.aspx How to Prepare Active Directory and Domains

I assume so as this server has been up and running for about a year now, and I was able to install SP1 for Exchange without issue. Do I have to do a domain prep prior to E2K7 SP2 install? Please be advised that this is an Exchange Hosted Services Server.

If you have the correct privs, then setup will automatically attempt to run the domain prep steps, but yes they need to be done prior to the installation of the SP2.If this a hosted server, I would suspect you wouldnt have those perms. I would check with the service provider to see if they have prepped the forest and what permissions you have.

It is a hosted server, but I host it so I have direct access to it. I am concerned about running adprep on the system as it is running great. Are you 100% sure that adprep has to be run prior to installing SP2 in a hosted services environment?

Not adprep, but the schema/AD and domain prep steps required by Exchange. Its not a hosted Exchange issue, these steps have to be run regardless for SP2.If the prep steps have already been done, they do not have to run again. In that case you can install SP2 assuming:"To install or upgrade the first instance of an Exchange2007 server role in an organization, you must have been delegated the Exchange Organization Administrator role. After you install Exchange2007 SP2 on an Exchange computer that is running the particular role, you can perform later installations or upgrades of Exchange2007 SP2 servers. To do this, you must use an account that has the Exchange Server Administrator role."If you already have those permissions, then you can run the prep steps listed in the previous link:http://technet.microsoft.com/en-us/library/bb125224.aspx How to Prepare Active Directory and DomainsAlso read:http://download.microsoft.com/download/8/3/E/83E9DB24-0041-4F7E-A0DD-26043BBF7CAA/RelNotes.htmRelease Notes for Exchange Server 2007 SP2 You must prepare ActiveDirectory and each domain before you perform the first installation of Exchange2007 SP2 in an organization. This process includes updating the ActiveDirectory schema for Exchange2007 SP2. For information about the required permissions and steps that you must follow to complete this process, see How to Prepare Active Directory and Domains in the Exchange2007 SP2 online Help. For a list ofActiveDirectory schema changes that are made when you install Exchange2007 SP2, see Active Directory Schema Changes (SP2).http://msexchangeteam.com/archive/2009/08/28/452209.aspxExchange 2007 Service Pack 2 Prerequisites Extend the Schema Prepare Active Directory Install Windows Installer 4.5 Uninstall Interim Updates This blog post lists all the perms you will need to prep the forest and domain for SP2 assuming they havent already been done..

Besides,please run ExBPA to have a health scan to see if Exchange Server can find Server which has been mentioned in the error.Please post the detail error information here.Regards,Xiu

ITCLarry, did you ever do your sp2 upgrade on your hosted exchange server?