Exactly the same issue on two machines after upgrading to
2.6.31-12.40/41 generic. Retaining kernel 2.6.31-11 as workaround and
hoping later updates solve this problem.

Kernel is seeing dongle as a usb drive and not a modem. I'm sure its the
kernel upgrade because NM and modem manager are the same versions.

BTW karmic alpha/beta is working very well for me, apart from this
problem.

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Huawei E169 USB dongle not working with kernel 2.6.31-12.40
https://bugs.launchpad.net/bugs/446146
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