I can confirm this bug. Most attempts at creating an Ad-Hoc connection
result in constant connect/disconnects. A couple times I have managed to
get it to stay connected temporarily but at some point everything goes
haywire and then I start seeing networks appearing in the list with
garbled names that do not exist. Any attempts to modify the network
cause the network-manager icon to disappear. Restarting X will get the
icon back but does not solve the reconnecting issue or get rid of the
strange networks from the list. Restarting the networking service
doesn't help either. The only way I have managed to recover from this is
to remove the networks from the Network Connections Program in System >
Preferences and then reboot.

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Network manager crashes on creating Ad-Hoc WiFi in Karmic
https://bugs.launchpad.net/bugs/490200
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