Looking at your DpkgTerminalLog.txt file I see the following:
Merging changes into the new version
Conflicts found! Please edit `/var/run/grub/menu.lst' and sort them out
manually.
The file `/var/run/grub/menu.lst.ucf-new' has a record of the failed merge of
the configuration file.
User postinst hook script [/sbin/update-grub] exited with value 3
dpkg: error processing linux-image-2.6.28-12-generic (--configure):
subprocess post-installation script returned error exit status 3
This looks to be a duplicate of bug 269539 so I am marking it as such.
Please continue to track this issue at that report. Thanks.
** Changed in: linux (Ubuntu)
Status: New => Incomplete
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Linux kernal problem
https://bugs.launchpad.net/bugs/398036
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