Indeed. Mathias and I just ran by the same error, and I went on and
increased the disk size for m1.small from 2 to 3 G. I was then able to
start the image.

This was done on Lucid Eucalyptus, running the Karmic image from the
store.

-- 
default karmic image from image-store doesn't run on default m1.small
https://bugs.launchpad.net/bugs/529056
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