Thanks for the bug report, and the link against the Debian bug.
I'm marking this bug "Fix Released". Per my testing, kvm version 1:79
+dfsg-0ubuntu4 is currently in Jaunty, and does not suffer this problem.
:-Dustin
** Changed in: kvm (Ubuntu)
Status: Triaged => Fix Released
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Fails to install correctly if /etc/group contains any line matching "kvm"
https://bugs.launchpad.net/bugs/286872
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