Deadlock on single object

I don't understand how this deadlock even gets started, it seems to say that process C8 has a U lock at the same time process 48 has an S lock on the same object.  Shouldn't that be prevented right there?  Shouldn't one wait on the other?

Then they both want to upgrade, the U to an X, the S to a U.

The statements are both simple updates by the clustered identity PK to the table, to a modest number of rows, maybe around 50.

Here's the resource list:

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resource-list

keylock hobtid=72057594828095488 dbid=5 objectname=MYDB.dbo.mytable indexname=mytable$mytable_pk id=lock25a75e200 mode=U associatedObjectId=72057594828095488
owner-list
owner id=process3e194c8 mode=U
waiter-list
waiter id=process404d048 mode=U requestType=convert

keylock hobtid=72057594828095488 dbid=5 objectname=MYDB.dbo.mytable indexname=mytable$mytable_pk id=lock25a75e200 mode=U associatedObjectId=72057594828095488
owner-list
owner id=process404d048 mode=S
waiter-list
waiter id=process3e194c8 mode=X requestType=convert

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There are a ton of indexes and a number of FKs on the table, and indexes on at least most of the FKs, in case that matters - but I saw it mentioned on a related thread:

http://social.msdn.microsoft.com/Forums/en-US/sqldatabaseengine/thread/70505972-f30e-40d1-a0bf-db3bd5d0f953

Also, both processes were (I think) inside of open transactions.

Thanks.

Josh