Turns out it is an issue with euca2ools and not eucalyptus. reverting.
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revno: 943
committer: Neil
branch nick: 1.6
timestamp: Mon 2009-10-26 10:52:44 -0700
message:
reverting invalid fix in revno 942 (was not a bug).
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** Changed in: eucalyptus
Status: Fix Committed => Invalid
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User data is not base64 decoded before being presented to the instance
https://bugs.launchpad.net/bugs/461156
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