The message is correct. But, if you do a Repair Install, which is essentially reinstalling Windows 7 on top of your current installation, that will fix the problem -- just don't enter a product key during the reinstall, and don't activate online, either. Once you've rebooted and confirmed that your setup is OK, you can then enter your product key -- and it will work!
I know ... I've done this on two PCs now, both of which needed clean reinstallations, and both of which used Upgrade versions.