This is not usb-creator bug.
Jaunty RC usb-stick created using Intrepid usb-creator fails the same way,
while Intrepid usb-stick created on Jaunty works fine.

Problem was caused by use of head command within initramfs.
Recent daily-live build solved this problem.
See https://bugs.launchpad.net/ubuntu/+source/casper/+bug/363038

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Live USB with persistent boot options fails to boot
https://bugs.launchpad.net/bugs/358881
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