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Internal server error is in truth a problem on the server side. When the client receives HTTP/500 response, there's not much it can do about it -- other than display it. May I suggest to reach out to RHN hosted folks (or admins) to investigate the issue further (seeing this is an rhn.qa environment, problems like this are nothing unusual).
But there is no error message, there is traceback. User shouldn't see any traceback.
If I set serverURL in /etc/sysconfig/rhn/up2date to point to URL which always returns 500 (ISE), I get a nice error message "We could not contact Satellite or Proxy at ...", which comes from _chooseServerPageApply. So if the server returns 500 (ISE) in consistent manner, the user will see a nice error message right at the beginning. If the first page passes thou, we don't catch the exceptions much beyond this point and leave it on firstboot to handle it, thus the tracebacks. I am not sure the effort to address all the places where the exception can appear and to QA it is worth the benefit, with subscription manager being available. I therefore propose WONTFIX, while acknowledging that we would probably be able to address it properly given we spend enough man hours on the issue. Mike, could you give the product management's ruling on this bug?
Agree with proposed resolution in comment 3.
Setting devel nack based on comment 4.