This is not an error in that it is not working but more an error in that it is working IF the settings are like in the Alloy project.

The problem is that the ps1 file demands that there are a file called connectionstrings.config and if there is no file like that the upgrade exits with an error. Many sites have the connectionstrings inside web.config so the upgrade script should support to look there also (like the upgrade for the CMS does)