Issue:
When activating Windows (in this case Server 2008 R2), you receive the following dialog box:
"Code: 0x8007232B Description: DNS name does not exist."

Solution:

If you receive this error, you are more than likely using an ISO from the Microsoft Volume Licensing Center when in reality you want to just use your license key (the OS is looking for your KMS server (Key management services), and if you don't have one, then you receive this DNS failure).

How to:

1. Click Start, click All Programs, click Accessories, and then right-click Command Prompt.
   1. Click Run as administrator.
2. Execute the following command (where the X's are your license key :)):
   1. slmgr -ipk xxxxx-xxxxx-xxxxx-xxxxx-xxxxx
3. You should get a popup saying the key has successfully been installed after you execute the command (there is a delay).  Once you see that, go ahead and activate windows as you normally would.
   1. Start->right click properties on My Computer->Activate...