Arglong:
Blocked VLK's are Volume licenses that have been instructed (by original owner) to disable to stop illegal use of.
I'm assuming you're wanting to install (on the teacher's home computer, to comply with the Work at Home policy) a Volume license on that user's computer. You have to use specific Volume License Windows XP media (meaning a CD thats specifically made to accept Volume Product Keys).
The Product Key update tool was not designed for this type of use, and the tool ultimately won't accept that product key.
I recommend submitting a request with our WGA support to clarify the exact next steps in this case - they can assist in a repair installation for volume media (if you have the Volume CD its assigned to)
http://support.microsoft.com/oas/default.aspx?&c1=509&gprid=9860&
-phil liu