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My guess is that he was Discharged in the '70s, but not Honorably. He appealed this sometime while Clinton was ... in the Oval Office. Political pressure was applied, and the Honorable Discharge was then granted.

I am certain you are correct and I am certain that is the motivation for his not wanting to unseal his records.

Given that, there should be some correspondence somewhere in State or other files that would collaborate this. Either requests to the Mass Governor in state archieves for a letter of support or perhaps a letter of denial of some permit or benefit due to his less than honorable discharge. I wouldn't be surprise if the Clintons hold such a document in their collection of stolen FBI files and are using it as blackmail against Kerry right now. If such a record of less than honorable discharge exists and could be found and it is genuine, then that would make for one hell of a TV ad!