Or WordPress users can't read and fully, and properly, follow the upgrade instructions.
Did you remember to switch to the default theme and disable all plugins before attempting to upgrade? And no, you shouldn't be able to go from 2.1 to 2.8. Attempting to do so is dangerous. There have been so many updates, changes, and new features added that trying to do so would be like trying to climb a ladder skipping 12 rungs at a time.
phpwalter: a short search on the forums will produce many results of how to fix that. You need to increase your php memory_limit
1. If you have access to your PHP.ini file, change the line in PHP.ini
If your line shows 32M try 64M:
memory_limit = 64M ; Maximum amount of memory a script may consume (64MB)
2. If you don't have access to PHP.ini try adding this to an .htaccess file:
php_value memory_limit 64M
3. Try adding this line to your wp-config.php file:
Increasing memory allocated to PHP