After update associated with kernel 2.6.31.15:

Same problem, with different error messages:
Login incorrect.  Give root password or Ctrl-D to continue.  Similar to 
'telinit 1' but the ncurses interface is breaking up.  
System does not freeze right away - pressing Ctrl-D repeatedly does stop the 
system eventually with mountall problem

Running karmic 9.10 with all updates in Sun VirtualBox 3.0.10r54097

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Key presses during Recovery menu captured by root shell
https://bugs.launchpad.net/bugs/457965
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