I usually only post issues that I've personally resolved. This one was solved by one of my crack engineers (with help from the internet) and bears repeating.
We are trying to implement Windows Server 2008 R2 and are now making use of the corporate KMS server that resides out in the corporate cloud. We made the appropriate firewall changes but every attempt at activation was met with the error:
0x80070005 Access is denied: the requested action requires elevated privileges
It comes down to this. If you have a Group Policy applied to the server you are trying to activate that forces the Plug & Play service to Automatic startup, you will get this error. Change the group policy to not defined and all is well. Note this has nothing to do with the actual state of the P&P service. Stopping it will not help.
One other note. If you attempt to use MSDN product keys to activate a Win 2008 R2 domain member server under a similar GPO, those keys will NOT work either.