Ok, Here's the summary and solution to the above problem.
I purchased my Dell XPS 8500 in 2012 with Windows 8 Home Premium installed.
I then purchased through the online Microsoft store the Windows 8 Pro Pack Upgrade in 2013.
I then upgraded to Windows 8.1 after the computer would not stop bugging me about upgrading.
After the update, I was asked to activate my version of windows with my product key. I entered the only product key I had (from the upgrade purchased in 2013 for Windows 8 Pro Pack. This key was rejected and produced the error above.
After, a long day of technical support with both Microsoft and Dell, what I discovered is that the Windows Activation utility would normally grab my key from the BIOS, but because I had updated with a retail key, it was somehow getting blocked and couldn't find my OEM product key. Don't call Dell. They won't help you. They don't print product keys on stickers any more and after they ship your computer out to you, they don't keep a record of the product key that is attached to the Windows installation they sent you...or, at least that's what multiple support people told me at Dell.
Long story short, in this instance, I needed my OEM product key. The only place (supposedly) that this exists is in your BIOS. After some googling, I found a utility called WpKey (which is a zip that contains an exe called pkeyui.exe). This is available in several places online, however, there are some of those adware sites that will trick you into downloading something else. Make sure to run your file through an online virus scan utility (if you need help on that, search google/youtube as there is a great video by Britec09 that details this process). I ran this utility and within seconds i had my OEM product key. Note: make sure you tick the box that says "MSDM" as this will display the key located in the BIOS (in my case, I had now three product keys, so I needed the MSDM key.
Next, I entered that key into the Activation menu and it worked.
Then, I had a fully activated version of Windows 8.1 (but not Windows 8.1 Pro Pack). This was easily solved. Windows key; type "Add features to Windows 8.1" and click the utility that pops up. For me, it automatically discovered my Windows 8 Pro Pack key and began installing without any more complaints.
I am now back to normal and I avoided both Microsoft's and Dell's suggestion to re-install Windows 8 from the BIOS and start over.
I can't believe that Dell actually tried to get me to purchase an extended warranty for my computer so that they could tell me to re-install windows and start over after they mailed me a new Windows 8 installation DVD. Save yourself the time and money. Google knows everything.