I was trying to upgrade my SQL SERVER 2008 Express with Advanced Series instance to SQL SERVER 2008 R2 Express with Advanced Series.
The upgrade was failing with the upgrade rules especially with SQL SERVER 2005 tools. Note: I had SQL SERVER 2005 installed in the same Virtual PC
To upgrade to SQL SERVER 2008 R2 Express make sure to remove the SQL SERVER 2005 tools via Add/Remove programs. Probably it won't appear in the same name instead you need to remove SQL SERVER 2005 but chose the Workstation components to uninstall and not the Database engine.
Once removing it try the upgrade and it will work successfully.