The Task Sequence fails.
Examining the SMSTS.log reveals the following error:
Installing SMS client OSDSetupHook
Clearing existing client configuration. OSDSetupHook
Cleaning existing client certificates from SMS certificate store OSDSetupHook
Restoring SMS client identity. OSDSetupHook
Could not import certificate to temporary store (0x80092024) OSDSetupHook
Failed to restore client certificates. Code 0x80092024. OSDSetupHook
Failed to restore SMS client identity. Code 0x80092024. OSDSetupHook
Failed to install SMS Client (0x80092024) OSDSetupHook
Failed to execute task sequence (0x80092024) OSDSetupHook
Examining the ccmsetup.log and client.msi.log reveals that the logs either do not exist or have not updated since the ConfigMgr 2007 client was originally installed on the reference image.
For all the details as to the cause and how to resolve it see the following Knowledge Base article:
KB2028442 – System Center Configuration Manager 2007 client may not install during an OSD Task Sequence in a Refresh scenario
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