Update: since I don't have a Nvidia card, I removed the following 
nvidia-related packages:
nvidia-common
nvidia-173-modaliases

This solved the problem and the kernel updated correctly.

nvidia-173-modaliases  was an obsolete package that is not in the Natty
repositories anymore. Could that have caused the problem?

Changed bug status to Opinion.

** Changed in: linux (Ubuntu)
       Status: New => Opinion

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https://bugs.launchpad.net/bugs/759531

Title:
  Natty update hangs on installing kernel 2.6.38-8 update

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