Upgrade has been performed but after reboots it does not proceed past grub bootloader.
Older versions of SMG did not lay out the disk partitions in a way that can accommodate the upgrade to 10.7.x. New installations of version 10.6.6 and later will be able to upgrade to 10.7.x without experiencing this issue.
This is an unrecoverable failure in the software update process and the system will need to be reinstalled and the latest backup restored.
See How to perform an OSRestore on Messaging Gateway for details on the osrestore process.