I've confirmed this with two geodatabases so far.
Steps.
Create backup of 9.3.1 database from SQL 2008 R2
Restore Backup of 9.3.1 into new SQL 2012 database
Connect to new database in ArcCatalog and upgrade the geodatabase
When I view the features in ArcCatalog I can see the Shape field is saying it's a geometry field, when I look at the table itself in SQL the Shape field is still an INT field. I am unable to create any Query layers and have them act like a Query Layer using any of these features.
If I create a new geodatabase, and copy the features into it, the field does convert to geometry so it's not the data. the Upgrade Geodatabase button apparently is not actually upgrading anything. Is this a known issue, or something special I ran into?