If memory serves the 406v2 didn't have enough RAM to keep the config backed up in memory and still do the upgrade. So the purpose of that xx.999 loader is to give you a firmware that can handle the upgrade process and still keep your config in memory and apply it after the firmware upgrade.
Personally I don't think I ever had a xx.999 firmware upgrade ever go smoothly. I just started using the DTE port to wipe the firmware and have it pull the new firmware I wanted (because that's where every upgrade led to in the end.) The point is you should make sure you have the ability to DTE into the 406v2 and know the steps before you upgrade. Some kind soul wrote up that information and put it in the FAQ but you still need to make sure you have a cable and a serial port.
At 3.2 on the IP400 series I don't think there was any licensing for IP endpoints. Everything just used VCM channels and they charged an exorbitant amount for the hardware. 406 VCMs should be cheap if they're still out there. You want the ones in fours (VCM4, 8 or 16) not the ones in 5s (VCM5, 10 ,20) because of the echo cancellation.