Artifacts when baking tangent normals

I don’t know what I am doing wrong, I’ve been stuck with this for a while now.

Here is the 2.5 blend file. Just hit the bake button.
http://www.speedyshare.com/files/23413163/wtf.blend

http://img517.imageshack.us/img517/5209/artifacts.png
The artifacts, it almost works besides some edges turning out really weird.