it isn't just that. That was the first thing I checked and the
/etc/apt/sources.list file was correct on CD. I can even run
update&upgrade on livecd. So it must use some different file for
sources.list during installing the target fs.

Since this comes at the very end of install, I tried copying
sources.list from cd to target fs. Then I did couple of bind mounts and
chrooted to target fs. I was able to do update&upgrade there too. I
didn't yet find which sources.list it uses during gui installer.
Definitely not the /etc/apt/sources.list on the liveCD.

I think this bug is two fold:

 1. It uses corrupt sources.list
 2. It does update from internet even not told to do so by installer settings

The latter bug reveals the first bug.

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https://bugs.launchpad.net/bugs/756719

Title:
  PowerPC Natty Beta LiveCD Hangs Bad Mirror

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