Does the user performing the task has enough permission on both folders (original QB installation, and new QB installation)?

Yes, the user is an administrator with full rights to both folders.

Are they network mounted directories? This is odd. Are you able to start QB5 and QB7 alone from both folders?

I am working on a vm doing a test upgrade with both versions on the same drive. I can start both, individually, the QB 4.0.29 server and log in and the QB 7.0.6 server and log in. The QB 4.0.29 instance is using a copy of the production database and the QB 7.0.6 is using the included test database.

That is quite odd. Which OS and JVM are you using?

The vm is running Windows 2008 R2 SP1 Standard and it has JDK 8 update 121 installed.

Just tried on Windows 2012 server as administrator and migration works as expected (the upgrade script has a bug and it fails the upgrade from QB4 to QB7). Do you have any virus software running? If yes, please turn off them temporarily.

Robin,

I have attempted the steps that you have suggested with no success. I have also downloaded version 7.0.9 and attempted both a migration and and in-place upgrade directly from version 4.0.29 to version 7.0.9 with no success. However, I was able to get the test system upgraded to version 7.0.9 by doing an incremental upgrade. I first migrated from version 4.0.29 to version 6.1.9. Once this was working I performed an in-place upgrade of version 6.1.9 to version 7.0.9. This approach was successful.

Therefore, unless you know of a reason that I should not use the incremental approach, I will perform the upgrade in our production system the same way.
Thanks,

You may also take backup of QB4 database via QB administration menu, and then restore the backup to QB7. That way you do not need to do increment upgrade.