The error is caused by a failing grub:
Setting up linux-image-2.6.20-15-generic (2.6.20-15.27) ...
Running depmod.
update-initramfs: Generating /boot/initrd.img-2.6.20-15-generic
cp: cannot stat `/etc/udev/rules.d/85-brltty.rules': No such file or directory
cp: cannot stat `/etc/udev/rules.d/05-options.rules': No such file or directory
The link /vmlinuz is a dangling linkto /boot/vmlinuz-2.6.17-11-generic
Running postinst hook script /sbin/update-grub.
Your /etc/kernel-img.conf needs to be updated. Read grub's NEWS.Debian[1]
file and follow its instructions.
1. /usr/share/doc/grub/NEWS.Debian.gz
You shouldn't call /sbin/update-grub. Please call /usr/sbin/update-grub instead!
Searching for GRUB installation directory ...
No GRUB directory found. To create a template run 'mkdir /boot/grub' first. To
install grub, install it manually or try the 'grub-install' command. ###
Warning, grub-install is used to change your MBR. ###
User postinst hook script [/sbin/update-grub] exited with value 1
** Tags added: feisty-upgrade
** Changed in: grub (Ubuntu)
Sourcepackagename: update-manager => grub
Status: Needs Info => Confirmed
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I upgraded from 6.10 to 7.04 and the kernel did not upgrade
https://bugs.launchpad.net/bugs/108576
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