7.0-RELEASE Upgrade problems

[Rob]

I'm new to FreeBSD and installed a base 7.0-RELEASE system and have been 
running it for a while with ZFS and gmirror partitions.  I've never 
updated since install, so I'm attempting to do so now, but I'm having no 
luck.  I'm following the upgrade instructions in the 7.2-RELEASE release 
notes, but I get an error I don't know what to do with.  I'm doing:

# freebsd-update upgrade -r 7.2-RELEASE
<Answer a few questions>
# freebsd-update install
Installing updates...chflags: ///usr/bin/CC: Operation not supported

I tried updating to the latest 7.0-RELEASE thinking there was a fix, but 
got:

# freebsd-update fetch
<Answer a few questions>
# freebsd-update install
Installing updates...chflags: ///usr/bin/dig: Operation not supported

Am I doing something wrong?  I haven't found any reference to this 
error, and while being very experienced with linux systems am new (as 
previously stated) to FreeBSD and am not sure where to start to track 
this down.

Does anyone have any suggestions?

Rob