Good news!  Dell has released an updated BIOS that remedies the problem.

Rev A03 for the Dell Optiplex 760 can be found at:

http://ftp.us.dell.com/bios/O760-A03.EXE

I have updated my test system to this revision, and confirmed that HPET
interrupts now correctly reach the Linux kernel with C states enabled.

This bug can now be CLOSED.

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Jaunty will not boot on Dell Optiplex 760 unless hpet=disable
https://bugs.launchpad.net/bugs/348694
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