Why does rhn-profile-sync fail for system registered on RHN Hosted Classic with an ISE (Internal Server Error)

Issue

When we are trying to register this machine to RHN with the rhn_register command, it registers the machine but it is unable to send the system profile.

Under output of rhn_register -vvv, we see the message :

There are are no entitlements associated with this hardware.

Also rhn-profile-sync fails with:

\# rhn-profile-sync
Updating package profile...
Updating hardware profile...
An error has occurred:
Internal Server Error
See /var/log/up2date for more information

And /var/log/up2date shows errors such as this:

[Tue Feb 14 10:11:23 2012] up2date updateLoginInfo() login info
[Tue Feb 14 10:11:23 2012] up2date logging into up2date server
[Tue Feb 14 10:11:27 2012] up2date successfully retrieved authentication token
from up2date server
[Tue Feb 14 10:11:27 2012] up2date Updating package profile
[Tue Feb 14 10:11:44 2012] up2date
Traceback (most recent call last):
  File "/usr/sbin/rhn-profile-sync", line 56, in 
    cli.run()
  File "/usr/share/rhn/up2date_client/rhncli.py", line 74, in run
    sys.exit(self.main() or 0)
  File "/usr/sbin/rhn-profile-sync", line 47, in main
    rhnHardware.updateHardware()
  File "/usr/share/rhn/up2date_client/rhnHardware.py", line 12, in
updateHardware
    hardwareList)
  File "/usr/lib64/python2.6/xmlrpclib.py", line 1199, in \__call\__
    return self.__send(self.__name, args)
  File "/usr/share/rhn/up2date_client/rpcServer.py", line 39, in _request1
    ret = self._request(methodname, params)
  File "/usr/lib/python2.6/site-packages/rhn/rpclib.py", line 387, in _request
    raise pe
: