You are right that we don't "preserve" the actual setting, but rather
"preserve" the use of AoE for EBS if you are upgrading instead of
forcing you to switch to iSCSI, which is the default for a fresh 2.0
installation. That `sed` statement, which is only executed if you are
upgrading, essentially changes the 2.0 default back to 1.6.2 default.

-- 
on upgrade from 1.6.2, euca_upgrade should preserve DISABLE_ISCSI="Y"
https://bugs.launchpad.net/bugs/617053
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