Recently we upgraded to vSphere 4.1 and this as expected included a new version of VMware Tools.
Many of the tools upgrades we initiated from vCenter were immediately reported as failed with the very non-descriptive:
Error Upgrading VMware Tools.
Turns out, if you look at the corresponding vmware.log for the failed tools upgrade VM, you will see errors to the effect: "TOOLS INSTALL Error copying upgrader binary into guest"
For the windows failure, fix this by deleting the binary left over from the previous upgrade:
For Linux failures, create the destination directory:
and retry the VMware Tools upgrade from vCenter - it will proceed without error.
Hopefully VMware fixes this with a patch of some sort soon.