I'll just follow up and report the ending to my story (that is, the story where the first two yellow cards failed with different errors and then my blue card stopped working). I spent another hour with support, for a total of over 4 hours of phone time, but this time I got somebody who really seemed to know what she was talking about (I wish I had gotten her name because I would send a note of appreciation along to Dish). After several calls from techs who seemed like they were all reading from the same simple troubleshooting script (not to mention repeating the same catch phrases over and over again -- "what is on your screen now?" "That's ok sir" "Thank you for that information"), I finally (!) talked to somebody who was helpful and who understood the hardware and the issues.
She told me they have had trouble with the new cards, a lot more trouble than they had expected. Most units work fine but some units basically reject the yellow cards. In a few rare cases the new cards even damaged the receiver. She was very helpful and wound up sending me a replacement 721 with a yellow card installed (at no charge, and I'm returning my original unit to them of course).
After some troubleshooting, her suspicion was that my failed blue card was a result of a signal problem. My switch test only reports 3 of the 4 expected signals (satellite 119 on both inputs but 110 on only one). It has always been this way and the unit has not caused me any trouble, but the theory is that this was confusing the receiver when I switched cards. She suggested some additional troubleshooting I could do on the LNB/switch/cables. Interestingly enough, after several hours on my own, swapping things around and running switch tests, I narrowed down that problem to a bad cable (one of the short cables between the LNB on the dish and the SW21 switch mounted just behind the dish). After swapping with a good cable (well, not even RG6, but good enough to get a signal), my receiver problems went away and I was able to use the blue card again! The bad cable is especially interesting since it had been "professionally installed" back when I upgraded to Dish 500 (that upgrade work was done by some bonehead company that isn't even our normal local dealer).
So now I've switched over to the new 721. I'm not sure if that was truly necessary but that is the approach we've taken. Looking back on the details, I think the first yellow card they sent me was defective, and the second yellow card was most likely not coded correctly for my receiver (as I understand it they tag each card for one specific receiver, and I think the error I received indicated the wrong ID was on the card). The third yellow card may have worked, but by that time I had already received the new 721 receiver and had activated it instead.
So, all in all, waaaaay too much of an ordeal for an encryption upgrade initiated by Dish. But at least I am up and running again, I learned several things, and at last I spoke with someone who restored my faith in Dish's tech support.