Yes, there is a known issue with Remote System Upgrade feature in Stratix® III, Stratix IV and Arria® II GX devices. The device fails to revert back to the factory image when a reconfiguration cycle is initiated to go from a factory image to an invalid application image (a blank or partially programmed application image, or an application image assigned with a wrong start address). The failure is indicated by continuous toggling of the nSTATUS pin. For more details of this known device issue, refer to the respective device family errata sheet.
The workaround will be implemented in the ALTREMOTE_UPDATE Megafunction in a future version of Quartus® II software. In the meantime, if you need to use the remote system upgrade feature for Stratix III, Stratix IV, and Arria II GX devices, you can download the patch with the ALTREMOTE_UPDATE Megafunction workaround for Quartus II software version 9.0 SP2 using the links below:
For more details on applying the workaround to your current design, refer to Detailed Solution for Remote System Upgrade feature issue (PDF).