Option 2 (see below) from DaniloPC verified, upgrade from 7u3 to 8u2 was now successful. Thanks
... Option 2. The second test that I did was to edit the /etc/resolv.conf file on the VC 7.0.3 before starting the upgrade process. I added the below line on the /etc/resolv.conf:
echo "search lab.local" >> /etc/resolv.conf
