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I found a few places where other people have mentioned a supposed 3-sysprep limit, but no authoritative source that agrees with a simple limit. There does, however, seem to be a 3-time limit on resetting the activation clock: http://support.microsoft.com/kb/929828 says a fatal error will happen if the Licensing Rearm program runs more than three times, but this can be skipped if you don't need to reset the licensing / registration / activation settings.
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I kept digging and I finally found a mention of this "3 generations limit" rule, here. But if this is for real, why is it so hard to find any references to it???
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I've heard from several sources that Vista sysprep is limited in the number of "generations" it allows -- that after 3 syspreps on one image (or successive images on different systems), the 4th sysprep corrupts both the original and the copied system. But I haven't been able to find verification of this anywhere, and reality prevents me from testing it myself. Is this for real? Does Vista sysprep work differently than XP sysprep in this way, and are you really limited to 3 syspreps in an image? Thanks!! Gary