I found the solution in this thread: http://forums.microsoft.com/TechNet/ShowPost.aspx?PostID=3315256&SiteID=17 Basically this is what happened: The MSDN subscriptions version of Windows Server 2008 installs by default using KMS (Key Management Service). The key MSDN gave is a MAK (Multiple Activation Key). So the install does not use the key, it tries to talk to KMS. We don't have KMS here so it fails. Doing the following activates it using the MAK key: 1) Open a cmd shell as Administrator. 2) Type the following (but use your key instead of all the X's) slmgr -ipk XXXXX-XXXXX-XXXXX-XXXXX-XXXXX 3) The prompt will return right away, but there is a licensing task that it started (if you look in Task Manager you can find a task SLsvc using up cpu, I assume this is where the licensing is going on). 4) After a while a dialog will pop up saying that it has been activated. Good Luck