As most probably all of you know that VMware release Update1 for vSphere 5. But, not everybody knows that with vSphere 5 U1, VMware created a fix for “bug” in ESXi5 free version. As you know, ESXi5 free is limited to 32vRAM (maximum virtual memory allocated to virtual machine) and non limited vCPU number. In Pre-Update1, one could have 32GB physical RAM or more in physical host, assign ESXi5 free license to that host and everything works fine.
With ESXi5 free Update1, if one has more than 32GB RAM on physical host and ESXi5 free installed, the license is no longer valid :-/ . Other words saying, if you have physical host with more than 32GB physical RAM and ESXi5 free installed on it, do not apply Update1 or reduce RAM size to exact 32GB or less, otherwise, your host cannot use ESXi5 free license.
See, FAQ from VMware, last point from below link.
http://www.vmware.com/products/vsphere-hypervisor/faq.html
In case is already to late you can always rollback Update1:
[box type=”info”] How to rollback ESXi5 Update 1[/box]
Yes it is a bug fix. The free version was never 32GvRAM. It was always stated as 32G Physical RAM.