The bug is actually in update-initramfs, not mkinitramfs. I verified
the bug and removing the double-quotation marks around ${OPTS} does
correct the problem. With the double quotes around ${OPTS}, passing the
-v option to update-initramfs produces the following output:
$sudo update-initramfs -k `uname -r` -u -v
update-initramfs: Generating /boot/initrd.img-2.6.17-10-generic
/usr/sbin/mkinitramfs: invalid option --
/usr/sbin/mkinitramfs: invalid option -- -
Terminating...
mkinitramfs failed for /boot/initrd.img-2.6.17-10-generic
--
mkinitramfs has a buggy verbose mode
https://launchpad.net/bugs/62643
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