I worked with Dragomir in IRC...

Turns out he needed to upgrade his kvm (userspace) as well as kvm-source
(kernel module) packages.  Once he did this, he's able to boot his vm's
fine.
Now, it seems, he back to testing this as a potential fix for this
issue.

Cheers,
:-Dustin

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Network issues with hardy guests/hosts, using default nic and virtio
https://bugs.launchpad.net/bugs/332156
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