That is not a problem. Everyone gets that warning during the upgrade. I did. I believe it may be because it is loading a new bootloader with the upgrade stuff. This is what a successful upgrade should look like:
C:\Program Files\Atmel\Flip 3.4.7\bin>batchisp.exe -device AT32UC3A1256 -hardwar
e usb -operation erase f memory flash blankcheck loadbuffer wifi_dnld.elf progra
m verify start reset 0
Running batchisp 1.2.5 on Wed Feb 12 23:28:34 2014AT32UC3A1256 - USB - USB/DFU
Device selection....................... PASS
Hardware selection..................... PASS
Opening port........................... PASS
Reading Bootloader version............. PASS 1.0.2
Erasing................................ PASS
Selecting FLASH........................ PASS
Blank checking......................... PASS 0x00000 0x3ffff
Parsing ELF file....................... PASS wifi_dnld.elf
WARNING: The user program and the bootloader overlap!
Programming memory..................... PASS 0x00000 0x2902b
Verifying memory....................... PASS 0x00000 0x2902b
Starting Application................... PASS RESET 0Summary: Total 11 Passed 11 Failed 0
C:\Program Files\Atmel\Flip 3.4.7\bin>