Symptoms

Trying to upgrade to 4.6.8 and get "unsupported database format" error during K2 database test
 

Diagnoses

K2 Database compatibility mode not set to "SQL 2008 (100)"

Please see documentation on changing compatibility modes here:
http://msdn.microsoft.com/en-us/library/bb933794(v=sql.105).aspx
 

Resolution

Set compatibility mode to "SQL 2008 (100)" and issue was resolved.