The error occurs when converting from a database version < 4.1.3 to a database version >= 4.1.3. The resulting error is one of the two listed here:

General Error

SQL ERROR [ mysql4 ]

Unknown system variable 'NAMES' [1193]

SQL

SET NAMES 'binary'

SQL ERROR [ mysql4 ]

You have an error in your SQL syntax; check the manual that corresponds to your MySQL server version for the right syntax to use near 'NAMES 'binary'' at line 1 [1064]

SQL

SET NAMES 'binary'

The backtrace in both of these errors points to line 707 of install/install_convert.php.

The problem is that function sql_server_info in mysql.php is returning the version of the destination database instead of the source database.