Fix config validation errors to show Failed status

Config validation errors are permanent and need user action to fix.
This commit makes them show the correct status conditions.

What changed:
1. Config errors now return TerminalError (not regular error)
   - Shows: Progressing=Blocked (won't auto-retry)
   - Shows: Installed=Failed (not Absent)

2. Check only the latest revision for errors (not all revisions)
   - Old revision errors that were fixed don't cause Failed anymore
   - Matches how BOXCUTTER mirrors status from latest revision only

Why this matters:
- Passes OpenShift downstream test (expects Installed=Failed for config errors)
- Users see "Blocked" not "Retrying" when they need to fix their config
- Status shows current state (latest revision) not old history

Assisted-by: Claude

Author: camilamacedo86

internal/operator-controller/applier/provider.go

@@ -9,6 +9,7 @@ import (
 	"helm.sh/helm/v3/pkg/chart"
 	"k8s.io/apimachinery/pkg/util/sets"
 	"sigs.k8s.io/controller-runtime/pkg/client"
+	"sigs.k8s.io/controller-runtime/pkg/reconcile"
 
 	"github.com/operator-framework/api/pkg/operators/v1alpha1"
 
@@ -77,7 +78,7 @@ func (r *RegistryV1ManifestProvider) Get(bundleFS fs.FS, ext *ocv1.ClusterExtens
 		bundleConfigBytes := extensionConfigBytes(ext)
 		bundleConfig, err := config.UnmarshalConfig(bundleConfigBytes, schema, ext.Spec.Namespace)
 		if err != nil {
-			return nil, fmt.Errorf("invalid ClusterExtension configuration: %w", err)
+			return nil, reconcile.TerminalError(fmt.Errorf("invalid ClusterExtension configuration: %w", err))
 		}
 
 		if watchNS := bundleConfig.GetWatchNamespace(); watchNS != nil {

internal/operator-controller/controllers/clusterextension_reconcile_steps.go

@@ -158,11 +158,11 @@ func ResolveBundle(r resolve.Resolver, c client.Client) ReconcileStepFunc {
 // handleResolutionError handles the case when bundle resolution fails.
 //
 // Decision logic (evaluated in order):
-//  1. No installed bundle → Retry (cannot proceed without any bundle)
-//  2. Version change requested → Retry (cannot upgrade without catalog)
-//  3. Cannot check catalog existence → Retry (API error, cannot safely decide)
-//  4. Catalogs exist → Retry (transient error, catalog may be updating)
-//  5. Catalogs deleted → Fallback to installed bundle (maintain current state)
+//  1. No installed bundle: Retry (cannot proceed without any bundle)
+//  2. Version change requested: Retry (cannot upgrade without catalog)
+//  3. Cannot check catalog existence: Retry (API error, cannot safely decide)
+//  4. Catalogs exist: Retry (transient error, catalog may be updating)
+//  5. Catalogs deleted: Fallback to installed bundle (maintain current state)
 //
 // When falling back (case 5), we set the resolved bundle to the installed bundle and return
 // no error, allowing the Apply step to run and maintain resources using the existing installation.

internal/operator-controller/controllers/common_controller.go

@@ -56,11 +56,8 @@ func setInstalledStatusFromRevisionStates(ext *ocv1.ClusterExtension, revisionSt
 	// Nothing is installed
 	if revisionStates.Installed == nil {
 		setInstallStatus(ext, nil)
-		if len(revisionStates.RollingOut) == 0 {
-			setInstalledStatusConditionFalse(ext, ocv1.ReasonFailed, "No bundle installed")
-		} else {
-			setInstalledStatusConditionFalse(ext, ocv1.ReasonAbsent, "No bundle installed")
-		}
+		reason := determineFailureReason(revisionStates.RollingOut)
+		setInstalledStatusConditionFalse(ext, reason, "No bundle installed")
 		return
 	}
 	// Something is installed
@@ -71,6 +68,45 @@ func setInstalledStatusFromRevisionStates(ext *ocv1.ClusterExtension, revisionSt
 	setInstalledStatusConditionSuccess(ext, fmt.Sprintf("Installed bundle %s successfully", revisionStates.Installed.Image))
 }
 
+// determineFailureReason determines the appropriate reason for the Installed condition
+// when no bundle is installed (Installed: False).
+//
+// Returns Failed when:
+//   - No rolling revisions exist (nothing to install)
+//   - The latest rolling revision has Reason: Retrying (indicates an error occurred)
+//
+// Returns Absent when:
+//   - Rolling revisions exist with the latest having Reason: RollingOut (healthy phased rollout in progress)
+//
+// Rationale:
+//   - Failed: Semantically indicates an error prevented installation
+//   - Absent: Semantically indicates "not there yet" (neutral state, e.g., during healthy rollout)
+//   - Retrying reason indicates an error (config validation, apply failure, etc.)
+//   - RollingOut reason indicates healthy progress (not an error)
+//   - Only the LATEST revision matters - old errors superseded by newer healthy revisions should not cause Failed
+//
+// Note: rollingRevisions are sorted in ascending order by Spec.Revision (oldest to newest),
+// so the latest revision is the LAST element in the array.
+func determineFailureReason(rollingRevisions []*RevisionMetadata) string {
+	if len(rollingRevisions) == 0 {
+		return ocv1.ReasonFailed
+	}
+
+	// Check if the LATEST rolling revision indicates an error (Retrying reason)
+	// Latest revision is the last element in the array (sorted ascending by Spec.Revision)
+	latestRevision := rollingRevisions[len(rollingRevisions)-1]
+	progressingCond := apimeta.FindStatusCondition(latestRevision.Conditions, ocv1.ClusterExtensionRevisionTypeProgressing)
+	if progressingCond != nil && progressingCond.Reason == string(ocv1.ClusterExtensionRevisionReasonRetrying) {
+		// Retrying indicates an error occurred (config, apply, validation, etc.)
+		// Use Failed for semantic correctness: installation failed due to error
+		return ocv1.ReasonFailed
+	}
+
+	// No error detected in latest revision - it's progressing healthily (RollingOut) or no conditions set
+	// Use Absent for neutral "not installed yet" state
+	return ocv1.ReasonAbsent
+}
+
 // setInstalledStatusConditionSuccess sets the installed status condition to success.
 func setInstalledStatusConditionSuccess(ext *ocv1.ClusterExtension, message string) {
 	SetStatusCondition(&ext.Status.Conditions, metav1.Condition{

internal/operator-controller/controllers/common_controller_test.go

@@ -240,3 +240,160 @@ func TestSetStatusConditionWrapper(t *testing.T) {
 		})
 	}
 }
+
+func TestSetInstalledStatusFromRevisionStates_ConfigValidationError(t *testing.T) {
+	tests := []struct {
+		name                  string
+		revisionStates        *RevisionStates
+		expectedInstalledCond metav1.Condition
+	}{
+		{
+			name: "no revisions at all - uses Failed",
+			revisionStates: &RevisionStates{
+				Installed:  nil,
+				RollingOut: nil,
+			},
+			expectedInstalledCond: metav1.Condition{
+				Type:   ocv1.TypeInstalled,
+				Status: metav1.ConditionFalse,
+				Reason: ocv1.ReasonFailed,
+			},
+		},
+		{
+			name: "rolling revision with error (Retrying) - uses Failed",
+			revisionStates: &RevisionStates{
+				Installed: nil,
+				RollingOut: []*RevisionMetadata{
+					{
+						RevisionName: "rev-1",
+						Conditions: []metav1.Condition{
+							{
+								Type:    ocv1.ClusterExtensionRevisionTypeProgressing,
+								Status:  metav1.ConditionTrue,
+								Reason:  ocv1.ClusterExtensionRevisionReasonRetrying,
+								Message: "some error occurred",
+							},
+						},
+					},
+				},
+			},
+			expectedInstalledCond: metav1.Condition{
+				Type:   ocv1.TypeInstalled,
+				Status: metav1.ConditionFalse,
+				Reason: ocv1.ReasonFailed,
+			},
+		},
+		{
+			name: "multiple rolling revisions with one Retrying - uses Failed",
+			revisionStates: &RevisionStates{
+				Installed: nil,
+				RollingOut: []*RevisionMetadata{
+					{
+						RevisionName: "rev-1",
+						Conditions: []metav1.Condition{
+							{
+								Type:    ocv1.ClusterExtensionRevisionTypeProgressing,
+								Status:  metav1.ConditionTrue,
+								Reason:  ocv1.ReasonRollingOut,
+								Message: "Revision is rolling out",
+							},
+						},
+					},
+					{
+						RevisionName: "rev-2",
+						Conditions: []metav1.Condition{
+							{
+								Type:    ocv1.ClusterExtensionRevisionTypeProgressing,
+								Status:  metav1.ConditionTrue,
+								Reason:  ocv1.ClusterExtensionRevisionReasonRetrying,
+								Message: "validation error occurred",
+							},
+						},
+					},
+				},
+			},
+			expectedInstalledCond: metav1.Condition{
+				Type:   ocv1.TypeInstalled,
+				Status: metav1.ConditionFalse,
+				Reason: ocv1.ReasonFailed,
+			},
+		},
+		{
+			name: "rolling revision with RollingOut reason - uses Absent",
+			revisionStates: &RevisionStates{
+				Installed: nil,
+				RollingOut: []*RevisionMetadata{
+					{
+						RevisionName: "rev-1",
+						Conditions: []metav1.Condition{
+							{
+								Type:    ocv1.ClusterExtensionRevisionTypeProgressing,
+								Status:  metav1.ConditionTrue,
+								Reason:  ocv1.ReasonRollingOut,
+								Message: "Revision is rolling out",
+							},
+						},
+					},
+				},
+			},
+			expectedInstalledCond: metav1.Condition{
+				Type:   ocv1.TypeInstalled,
+				Status: metav1.ConditionFalse,
+				Reason: ocv1.ReasonAbsent,
+			},
+		},
+		{
+			name: "old revision with Retrying superseded by latest healthy - uses Absent",
+			revisionStates: &RevisionStates{
+				Installed: nil,
+				RollingOut: []*RevisionMetadata{
+					{
+						RevisionName: "rev-1",
+						Conditions: []metav1.Condition{
+							{
+								Type:    ocv1.ClusterExtensionRevisionTypeProgressing,
+								Status:  metav1.ConditionTrue,
+								Reason:  ocv1.ClusterExtensionRevisionReasonRetrying,
+								Message: "old error that was superseded",
+							},
+						},
+					},
+					{
+						RevisionName: "rev-2",
+						Conditions: []metav1.Condition{
+							{
+								Type:    ocv1.ClusterExtensionRevisionTypeProgressing,
+								Status:  metav1.ConditionTrue,
+								Reason:  ocv1.ReasonRollingOut,
+								Message: "Latest revision is rolling out healthy",
+							},
+						},
+					},
+				},
+			},
+			expectedInstalledCond: metav1.Condition{
+				Type:   ocv1.TypeInstalled,
+				Status: metav1.ConditionFalse,
+				Reason: ocv1.ReasonAbsent,
+			},
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			ext := &ocv1.ClusterExtension{
+				ObjectMeta: metav1.ObjectMeta{
+					Name:       "test-ext",
+					Generation: 1,
+				},
+			}
+
+			setInstalledStatusFromRevisionStates(ext, tt.revisionStates)
+
+			cond := meta.FindStatusCondition(ext.Status.Conditions, ocv1.TypeInstalled)
+			require.NotNil(t, cond)
+			require.Equal(t, tt.expectedInstalledCond.Status, cond.Status)
+			require.Equal(t, tt.expectedInstalledCond.Reason, cond.Reason)
+		})
+	}
+}