I experienced the same problem on an Intel Core 2 Duo with Win XP as the host 
system, 2GB RAM (512 for the virtual machine),
and Ubuntu Gutsy (7.10) Server as the guest OS.
After following the above workaround, I was able to boot, but I ended up with a 
dirty file system, requiring extensive repairs using fsck, which I had to run 
manually from a maintenance shell that the system dropped me into after 
rebooting.
After cleaning the file system, I had to reboot two more times in order to get 
it to mount read-write and to boot properly.

Hope this helped.

-- 
Panic: CPU too old (after installing Gutsy i386 server) 
https://bugs.launchpad.net/bugs/126863
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