Trevor, I recently had this issue with a lab install of 4.0 with KVM host server. All ubuntu 12.04 servers.
To resolve it I simply had to copy from management server the following /usr/lib/cloud/common/vms/systemvm.iso to the exact path on the KVM server.... Though I haven't tried it I'm wondering if running apt-get install cloud-system-iso would also fix it.. I'm just getting my feet wet with CloudStack and haven't had time to dig into the code. Hope this fixes it for you! -Rob
