A small number of UK Windows Phone 7 subscirbers facing an activation problem relating to their Windows Live accounts showing up within the operating system. The problem appears when a user tries to associate their Live account with WinP7, and displays a message “Product Activation Failed” — you’re required to enter a manual activation code from Microsoft support.
The reason behind the error is available online on Microsoft, but “no details” are ever given to the user about why it comes up in the first place:
In Windows Phone 7, during your first Windows Live ID sign in, a background validation is performed prior to completing the sign-in process and connecting to Windows Phone 7 services such as Xbox LIVE, Marketplace, and Hotmail. In rare cases where this validation fails, you may be prompted to enter an activation code before Windows Live ID sign in can be successfully completed.